I believe that walking away from an active role in the Middle East within the first couple of days of taking office, when President Bill Clinton had been incredibly close to achieving an Israeli-Palestinian agreement, was a terrible mistake by President George W. Bush - his second mistake, naturally, being his actions in the aftermath of 9/11 and, particularly, the invasion of Iraq.
Jokingly, had it not been for my own defeat in the 1988 U.S. presidential election against George H.W. Bush, the current state of affairs and, specifically, George W. Bush would not be occurring.
The idea of a possible Israeli-Palestinian confederation does not make sense if it is not preceded by a two-state solution (see "The Israeli-Palestinian Confederation Proposal" by Josef Avesar in the Palestine-Israel Journal, Vol. 14 No. 2, 2007 devoted to Future Options - ed.).

For a Palestinian State with Viable Borders alongside Israel

An absolute precondition to the idea of confederation is two viable governments in Israel and Palestine. Nothing the United States does in the Middle East will make a difference if there is no solution to the Palestinian problem. There must be a Palestinian state, with borders, alongside the state of Israel.
It is preposterous for a U.S. president to go over to the Middle East and lecture the people about democracy, but people are more receptive to activity by the Quartet (U.S., United Nations, European Union and Russia). The idea that the U.S. itself can broker a deal is not feasible. The Quartet's Middle East envoy, former British Prime Minister Tony Blair, is doing a good job, but it has to be a collective effort.

The EU Is the Historical Precedent for an Israeli-Palestinian Confederation

Concerning the idea of an Israeli-Palestinian confederation, there is a historical precedent for this. In 1950, following World War II, Jean Monnet and six European countries initiated the European Coal and Steel Community. This evolved into the European Economic Community, and now the European Union (EU). They now have a court system which looks after humanitarian law, a common currency and much more. But first there were six independent sovereign states. A similar process can be the basis for a future Israeli-Palestinian confederation.
At the Taba discussions between Israelis and Palestinians, which took place in 2001, they agreed on the idea of an international fund which would help to finance components of a solution to the conflict. That would definitely be one way to build trust between the sides. It can be started by dealing with the social services, perhaps not tackling the most difficult of problems first - but investing in health care, publicly funded projects, aspects that both sides need and require. We should not begin with the question of the future of Jerusalem, whether it should be divided or not, which is admittedly an incredibly difficult problem.

If You Don't Talk to Your Enemies, You Won't Make Peace

We have been absent without leave in the Middle East for the past seven years. The basis for discussion is there. If you don't talk to your enemies, you're not going to make peace. You need to have dialogue. You're not going to make peace if you don't concede anything - you need to have an open mind.
I believe that a future Democrat president will be much more involved in the negotiations to realize these goals.