I've gone to some lengths to understand this issue. I'd still recommend Yoav Shamir's Defamation, which is one of the best things I've seen in seeking to understand it. I've linked it here before.
I take the view that no human is born with a moustache twirling streak of evil. I remember our eldest coming back from school at age five and asking us what a "nigger" was. A black kid had just started at her school, my daughter had been given the responsibility of chaperoning her around in her first days at school. During the prosecution of her duties, there was a five year old boy who called her young charge that name.
That boy was a racist at five years old, and there was really only one way it could have happened. He was conditioned to be so by the people around him. I've no doubt he thought himself utterly in the right to parrot sentiments he'd heard elsewhere.
Shamir's film shows the same thing happening systematically, in the education system, in Israel. These kids are taught by their own state that Israel is the only safe place in the world for them, that the rest of the world is anti-Semitic, hates them and will kill them, given the opportunity.
It's heartbreaking to watch, but it went a long way to explaining the situation for me personally. That five year old racist probably won't be a racist when he grows up; he'll probably end up thinking that the people who taught him those things were utter dicks. Israeli kids are subject to a curriculum which teaches them that the world is as dangerous for Jews today as it was in Hitler's Germany, and that they have a natural right to the country they live in, and that the Palestinians are the invaders. What chance do they got of swerving that direction?
Astoundingly, some do, and it is Israeli dissidents like Yoav Shamir and Jonathan Cook that often provide some of the most insightful analysis of life in that country.