Been there 4 times: First for a year, then 4 months, then 3 months, then 6 weeks.
Almost all my friends and family there are Jewish, but I managed to befriend an Israeli/Palestinian/Arab/Muslim (a fisherman/pot dealer from Acre), who initially was sure I was a spy but then we became cautious friends.
I also became friendly with some Druze Arabs who I worked with in the north. Nice people, very hospitable. Visited their homes several times.
There is a lot that has gone on to make the Jews and the Arabs there hate and fear one-another, but I also heard many stories and saw many examples of coexistence and decency between Jews and Arabs.
While I heard expressions of fear of the Arabs I never heard anyone teaching or espousing hatred of Arabs in Israel.
I really think peace is possible once respect and acceptance becomes the norm rather than the other crap.
Good shwarma too.