The world isn't just watching the Israeli government commit a crime in Gaza; we are watching it self-harm. This morning, and tomorrow morning, and every morning until this punishment beating ends, the young people of the Gaza Strip are going to be more filled with hate, and more determined to fight back, with stones or suicide vests or rockets. Israeli leaders have convinced themselves that the harder you beat the Palestinians, the softer they will become. But when this is over, the rage against Israelis will have hardened, and the same old compromises will still be waiting by the roadside of history, untended and unmade.

To understand how frightening it is to be a Gazan this morning, you need to have stood in that small slab of concrete by the Mediterranean and smelled the claustrophobia. The Gaza Strip is smaller than the Isle of Wight but it is crammed with 1.5 million people who can never leave. They live out their lives on top of each other, jobless and hungry, in vast, sagging tower blocks. From the top floor, you can often see the borders of their world: the Mediterranean, and Israeli barbed wire. When bombs begin to fall – as they are doing now with more deadly force than at any time since 1967 – there is nowhere to hide.

There will now be a war over the story of this war. The Israeli government says, "We withdrew from Gaza in 2005 and in return we got Hamas and Qassam rockets being rained on our cities. Sixteen civilians have been murdered. How many more are we supposed to sacrifice?" It is a plausible narrative, and there are shards of truth in it, but it is also filled with holes. If we want to understand the reality and really stop the rockets, we need to rewind a few years and view the run-up to this war dispassionately.

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The Israeli government did indeed withdraw from the Gaza Strip in 2005 – in order to be able to intensify control of the West Bank. Ariel Sharon's senior adviser, Dov Weisglass, was unequivocal about this, explaining: "The disengagement [from Gaza] is actually formaldehyde. It supplies the amount of formaldehyde that is necessary so that there will not be a political process with the Palestinians... this whole package that is called the Palestinian state has been removed from our agenda indefinitely."

Ordinary Palestinians were horrified by this, and by the fetid corruption of their own Fatah leaders, so they voted for Hamas. It certainly wouldn't have been my choice – an Islamist party is antithetical to all my convictions - but we have to be honest. It was a free and democratic election, and it was not a rejection of a two-state solution. The most detailed polling of Palestinians, by the University of Maryland, found that 72 per cent want a two-state solution on the 1967 borders, while fewer than 20 per cent want to reclaim the whole of historic Palestine. So, partly in response to this pressure, Hamas offered Israel a long, long ceasefire and a de facto acceptance of two states, if only Israel would return to its legal borders.

Rather than seize this opportunity and test Hamas's sincerity, the Israeli government reacted by punishing the entire civilian population. It announced that it was blockading the Gaza Strip in order to "pressure" its people to reverse the democratic process. The Israelis surrounded the Strip and refused to let anyone or anything out. They let in a small trickle of food, fuel and medicine – but not enough for survival. Weisglass quipped that the Gazans were being "put on a diet". According to Oxfam, only 137 trucks of food were allowed into Gaza last month to feed 1.5 million people. The United Nations says poverty has reached an "unprecedented level." When I was last in besieged Gaza, I saw hospitals turning away the sick because their machinery and medicine was running out. I met hungry children stumbling around the streets, scavenging for food.

It was in this context – under a collective punishment designed to topple a democracy – that some forces within Gaza did something immoral: they fired Qassam rockets indiscriminately at Israeli cities. These rockets have killed 16 Israeli citizens. This is abhorrent: targeting civilians is always murder. But it is hypocritical for the Israeli government to claim now to speak out for the safety of civilians when it has been terrorising civilians as a matter of state policy.

The American and European governments are responding with a lop-sidedness that ignores these realities. They say that Israel cannot be expected to negotiate while under rocket fire, but they demand that the Palestinians do so under siege in Gaza and violent military occupation in the West Bank.

Before it falls down the memory hole, we should remember that last week, Hamas offered a ceasefire in return for basic and achievable compromises. Don't take my word for it. According to the Israeli press, Yuval Diskin, the current head of the Israeli security service Shin Bet, "told the Israeli cabinet [on 23 December] that Hamas is interested in continuing the truce, but wants to improve its terms." Diskin explained that Hamas was requesting two things: an end to the blockade, and an Israeli ceasefire on the West Bank. The cabinet – high with election fever and eager to appear tough – rejected these terms.

The core of the situation has been starkly laid out by Ephraim Halevy, the former head of Mossad. He says that while Hamas militants – like much of the Israeli right-wing – dream of driving their opponents away, "they have recognised this ideological goal is not attainable and will not be in the foreseeable future." Instead, "they are ready and willing to see the establishment of a Palestinian state in the temporary borders of 1967." They are aware that this means they "will have to adopt a path that could lead them far from their original goals" – and towards a long-term peace based on compromise.

The rejectionists on both sides – from Mahmoud Ahmadinejad of Iran to Bibi Netanyahu of Israel – would then be marginalised. It is the only path that could yet end in peace but it is the Israeli government that refuses to choose it. Halevy explains: "Israel, for reasons of its own, did not want to turn the ceasefire into the start of a diplomatic process with Hamas."

Why would Israel act this way? The Israeli government wants peace, but only one imposed on its own terms, based on the acceptance of defeat by the Palestinians. It means the Israelis can keep the slabs of the West Bank on "their" side of the wall. It means they keep the largest settlements and control the water supply. And it means a divided Palestine, with responsibility for Gaza hived off to Egypt, and the broken-up West Bank standing alone. Negotiations threaten this vision: they would require Israel to give up more than it wants to. But an imposed peace will be no peace at all: it will not stop the rockets or the rage. For real safety, Israel will have to talk to the people it is blockading and bombing today, and compromise with them.

The sound of Gaza burning should be drowned out by the words of the Israeli writer Larry Derfner. He says: "Israel's war with Gaza has to be the most one-sided on earth... If the point is to end it, or at least begin to end it, the ball is not in Hamas's court – it is in ours."