If the occupying state is dismantled, how can one live peacefully with the people who tortured you, your family and society for decades and made your life hell...

South Africa pulled it off. But yes, it basically required dismantling the state completely from what it was. South Africa as it existed before and after apartheid are essentially different states with the same name. They got a new Constitution and everything. They still have a lot of problems with the white population having a majority of the land and money, but there's nowhere near the violence there was beforehand. Everyone mostly lives in peace together now. It can be done. The same thing happened with the IRA in the UK.

We would need to do the same thing. Dismantle Israel completely down to its roots, build something new in the same place from scratch, a place for both Palestinians and Israelis can live together. Some people would be pissed and there'd be some trouble in the beginning, but most people want to live in peace.