Israel needs to do something to change the terms of the debate and redirect international attention. As I have noted previously, however, Israel is hobbled by an inability to formulate a long-term policy and a lack of strategic vision. It's entire policy at this point is directed at stopping the pain (in the form of international sanctions) and returning to the status quo. The question it continually asks is "when have we done enough to be treated nicely again." Since you can never do enough to mollify critics (short of taking Helen Thomas' advice and dissolving the State altogether), this strategy is a sure fire loser.
To regain the upper hand, Israel needs to make bold moves that are not concessions but look like concessions. This requires looking at the key players (Turkey, PA) and possible new players to change the nature of the situation. Turkey has given up on becoming European and is now looking to become a strong regional power. The PA is looking for some forward progress on the political front that yields real returns to a population that has been willing to go along with political reform on the promise that it will lead to tangible results. Possible new players include Brazil (also looking for an enhanced global role), India, China, and anyone else moving up the power ladder to challenge U.S. and EU supremacy on the diplomatic front.
If I were making Israeli policy, I would look to set a timetable to restore full control of the PA area to PA authority to restore the status quo prior to 2000. I would ask Turkey and Brazil to help mediate, with an end to the Gaza blockade promised in exchange for Turkey agreeing to provide the necessary security guarantees. I would also press for those parties with diplomatic ties to Gaza to begin pressing Hamas for a timetable for elections following an Israeli end to the "economic siege." If accepted, this would allow Turkey to claim a huge diplomatic coup, while resuming military cooperation with Israel under the rubric of protecting the Palestinians from Israeli aggression. It would also create severe pressure on Hamas to hold elections and reintegrate into the PA -- which is enjoying significantly improved popularity as a result of cleaning up corruption in the West Bank. If Turkey and Brazil declined, it would undermine Turkey's diplomatic high ground outside the Islamic world for their failure to "engage constructively."
There are many risks and problems with this strategy, and it may be that better ones could be devised. But without development of an actual strategy, Israel will find itself continually making concessions that are treated as insufficient, or risk the economic hardship of international isolation.