This article makes some good points about what Israeli spokespeople should be saying:

WHAT SORTS OF arguments should Israel should be making?

The first step amounts to a kind of reclamation project. Israeli spokesmen must stress that, pace Kofi Annan, the terrritories are not "occupied" but disputed, and that the presence of Israelis on them does not violate the one applicable article of international law as set down by Geneva Convention.....

If this seems a stretch, the next line of defense might go as follows: "Yes, the territories are occupied. But Israel came to occupy them in the course of a war it did not start. It continued to occupy them after their return was rejected at the Arab summit in Khartoum. And Israel still occupies them because Israelis have not yet seen on the part of the Arabs any serious sign that a return of the territories will genuinely guarantee our security within the pre-1967 borders. In other words, the occupation is not something Israelis have forced on the Palestinians. It is an occupation they have forced on us."

For the second step, Israeli spokesmen must speak of the conflict not as a battle between Jews and Arabs, but between democrats and dictators. Consant attention must be called to the fact that the PA abides neither by the rule of law nor by the ordinary strictures of human rights, that it suppresses political dissent and press freedom, and that Arafat, far from being the champion of his "people," is just another garden-variety Arab despot foisted on a nation that deserves better.

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Finally, the argument against terrorism must be placed in the context of an argument for the legitimacy of the state of Israel. For most Israelis, as for those in the West, this may not seem much in doubt. But that legitimacy is very much in doubt among too large a percentage of the Palestinian population, and people in the West need to understand that the dispute over the territories is merely a proxy argument over this larger question.

WHY DO THEY murder us in Tel Aviv? Why do they massacre us in Netanya? Why are they blowing up buses at Meggido Junction? Why are they wiping us out in the cafes of Rehavia? And why do such attacks enjoy widespread popularity in one survey of Palestinian opinion after the next? The people who conduct Isael's hasbara efforts must begin to put these questions into the minds of their Western audiences. And they must awaken the West to the danger Israel faces by constantly supplying the answer.