It seems to me, and this is almost certainly an oversimplification but here it is anyway, that the core of the problem is that neither side is actually disincentivized to kill innocent people on the other side. There's only political upside to it.
Hamas indiscriminately fires its rockets with a goal of random slaughter, which provokes an inevitable response from the Israeli government, who absolutely must retaliate in order to appease the people who keep them in power. That inevitable retaliation, of course, is the true goal of the initial attacks that provoked it, because more dead people in Gaza is only good news for Hamas - it just increases their influence. So why would either side stop doing what it's doing?
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