Western liberal democracies, their ideas, their organizing principles, their perceptions of the Middle East, and their colonial past have been intimately involved in the creation of Israel, Palestinian-Israeli peace-building, and the political economy of Palestine. This paper explores how this operates with continuity to the advantage of Israel and the detriment of Palestinians, as well as peace. It begins with an important example, the 1947 United Nations plan for the partition of historic Palestine. It was developed out of a peace model based on a principle of separating Jews and Palestinians into different homelands, and it demonstrably favoured the ambitions of the former while mostly dismissing the voice of the latter. Such disdain for the aspirations of the indigenous native was par for the colonial era, and set the stage for decades of violence and instability in the Middle East. The paper then explores how that attitude remained foundational to the logic of Western engagement with Israel-Palestine peace-building in the Oslo Peace era that began in early 1990s. In order to support the peace process, Western states began devising and funding large-scale development projects meant to "modernize" Palestinians by imbuing them with liberal-democratic institutions and the accoutrements of civilization, to "enable" them to be well-enough-developed to naturally live alongside democratic Israel in peace in an autonomous state. While pursuing this development model, which was steeped in Washington consensus neoliberal economics and a chauvinist colonial mentality, donors largely silenced the Palestinian voice, ignored Palestinian experiences, and operated oblivious of Israeli colonialism taking place on Palestinian lands and of the grave harm Israeli policies caused for Palestinians. After the Second Intifada, that came to include a focus on providing security for Israel but without any such concern for Palestinians suffering disproportionately from violence. To adopt such harmful positions, Western sponsors of the peace and aid programs had to decontextualize facts, leading to donor aid policies that are separated from reality, undermining actual Palestinian development, subsidizing ongoing Israeli colonization, and dooming the peace process to failure. The paper concludes noting how even the best intentioned Western liberal democratic actors keep undermining peace and reinforcing a violent colonial reality that, to this day, structurally denies Palestinians their right to self-determination and peace in the Middle East.