I think ultimately, electricity is the answer. Electric motors are already more efficient and powerful than gasoline engines. Look at the Tesla roadster. The thing goes like 0-60 in 5 seconds, all from an electric motor the size of a watermelon that two men can carry around. Its top end speed isn't as high as a gasoline engine but the top end is still way above the legal speed limit in any state (want to say the top speed is somewhere around 100mph). They also have fewer moving parts, are more reliable, need little if any lubrication, and so forth.
The ONLY problem with electric vehicles right now is batteries. Ranges have gotten better, the Tesla Roadster can go around 225 miles on a charge, but they still aren't great. Further, to me, the main problem is that you can't just stop and "fill 'er up." Charging an electric vehicle generally takes several hours. So even if the range increased to, say, 350 miles, the car would still be useless for things like long distance road trips. Where you'd stop at a gas station for 5 minutes with a gasoline car, you'd have to stop overnight for an electric.
How to get around this is the question. I've heard capacitors mentioned. A "swappable" battery system could be developed, whereby every car uses the same battery and you would roll into a station, back up, and a machine would swap it out. You'd get a fresh battery and yours would go on a charger for someone else to get later. Or, we could begin to have overhead electric lines of the type many buses run on today.
The other problem, is right now, you need a house to own an electric car, as most people living in condos or apartments don't have a place to plug their car in. So, oddly enough, in the area where current limited-range electric vehicles would be most useful, namely, urban areas, they are largely unusable.
DEspite these challenges, I really think electric is the future. The advantage is the technology of the motor itself is highly developed and highly efficient. The other advantage is there are any number of ways to generate electricity. Personally, I see us using nuclear as a stop-gap until solar, wind, and others become more viable.