Many mediations fail because the parties are unable to identify a reasonable compromise solution. That is not the case with the Israeli/Palestinian dispute; everyone knows what the ultimate framework of the deal is. This is a question of will, not of imagination; the problem is that the risks associated with a deal, in the eyes of both parties (but particularly the Israeli side) exceed the benefits under current conditions.
Why is that? Because both sides would probably be facing at least a low-level civil war if they actually come to an agreement. In addition to that, the Israeli government would have to assume that armed resistance would continue from at least some Palestinians even if they have a binding deal with the PA. The status quo may not offer any kind of ultimate peaceful solution, but it looks better than this alternative.
What could change that? The bottom line is that the Palestinians currently have no leverage to force the Israelis to negotiate. They can’t rely on the US to pressure the government, the Arab world is largely indifferent, and any effort at insurrection would turn the West Bank into Gaza. All of their efforts to enlist the support of the UN have failed. Their last card is to dissolve the PA, which would force the Israelis to bear the costs of renewed occupation and administration, but the Israelis are clearly willing to do that if push comes to shove.
I can only imagine two scenarios in which the Israeli government would conclude that the risks of reaching an agreement were lower than the risks of trying to maintain the status quo. First, there could be some huge blow-up over the holy places that would cause intense outrage among all of the Arab nations and force Jordan and Egypt to provide military assistance to the Palestinians. Second, the potential exists for what amounts to a civil war within Israel’s borders with the Arab population; some of that is occurring today. Barring one of those two events, there will be no meaningful negotiations for the foreseeable future.