Nick Kristof has a column up about Israeli human rights activists who are protecting Palestinians from the violent predations of settler extremists, who think (with reason) that they can generally assault Palestinian residents immune from legal repercussions.
I've written several posts urging that the Israeli government initiate a crackdown on settler violence against Palestinians. The most prominent, Ending the Culture of Impunity, observed that such a crackdown would be in Israel's best interests too, as "[a]side from the fact that stirring up animosity in the Palestinian population, natch, harms Israel's security, more broadly Israel really doesn't want essentially a separatist extremist right-wing militia that's already proven itself willing to attack Israel when upset running wild on its frontier."
That being said, Matt Yglesias is absolutely right that the likelihood of Israel acting is reduced insofar as it is accountable to Israelis and not Palestinians -- in other words, the problem of settler violence against Palestinians is likely intractable so long as the occupation continues.
The reason I'm a democrat is because history tells us that even folks with good intentions are unlikely to be particularly responsive to the concerns of constituencies to which they are unaccountable. The fact that Israel has some interest in curbing settler violence does mean something, but it doesn't mean everything. The full rights of Israelis and Palestinians alike are unlikely to be respected but in a situation where each is governed by an authority that is democratically accountable to their concerns. In other words: two states.
I support deferring to democratic majorities when they're enacting policies that bear primarily upon themselves. Israel deserves plenty of deference in how it manages its own security. It deserves considerably less in terms of how it protects the rights of Palestinians under its domain. Often these considerations overlap, and then we have a tough problem. But there is no element of Israel's security which is strengthened by letting settlers beat people up with impunity. The rule of law must be respected, and settlers enacting the "price tag" policy must be made to pay their piper. If Israel can't muster the will to do that on its own, then perhaps they could use a little push from the US government.