If (when) Arafat dies, it could either be good or bad....
Arafat was making some noises towards peace (very quietly, but at least he was less vocal in support of siuicide bombers), and the situation seems (to someone who only watches the news) to be improving.
(This may not be the case, as experience has taught me that the news only reports a small percentage of the violence for fear of worrying us poor punters
)
As he has left no official successor, there could be a power struggle, and that could lead to Hamas having more power than they have at the moment (remember that Hamas and the PLO are not talking to each other these days), and a return to the days of unofficial war.
On the other hand, a more moderate leader could come to power and finally start talking to this Israelis and working towards a real peace.
This situation is neither clear, nor simple... Israel has targeted civilians in retaliation, and also in error. The palestinians have targeted civilians regularly.
The palestinians will tell you they are fighting to get their land and identity back from an oppressive neighbour.
The Israelis will say that they are fighting terrorists and defending their right to exist.
There will be no simple and quick solution to this, as it is far too ingrained on the psyche of both nations (rather like the hatred between Catholics/Protestants in Northern Ireland- it has taken a long time to get to where we are today) and there are too many "war crimes" on both sides to allow for an instant end.
Even when (if) a peace is achieved, there will be suspicion and mistrust, as well as the odd die hard who cannot give up the fight...
I hope that this leads to peace, as I have seen enough of war to want peace wherever possible, but I think that this will take a long time to happen, and will cost the lives of too many innocent people.