In 1947 Palestinian Arabs and their allies rejected a UN proposal to partition Palestine into a Jewish state and an Arab state, just as ten years before they rejected a similar partitioning proposed by the Peel Commission. More recently, both at Camp David and at Taba in Egypt, Arab negotiators again rejected proposals that would have led to the creation of a Palestinian state alongside Israel.
Apparently, many Palestinian Arabs, and much of the Arab world, continue to think that they can do better than a two-state solution. After decades of conflict, it seems that the Arabs have not given up their goal of making all of Palestine into an Arab state.
True, Arab leaders differ over tactics. From time to time Arab negotiators enter into discussions about the mundane issues that prospective neighboring states would need to resolve, such as political boundaries, security arrangements, and economic relations. It is possible that at some point the Arabs will agree among themselves that the creation of a Palestinian state that claims to be committed to peaceful coexistence with Israel will be a useful tactic.
American and European governments seem willing to use the carrot of economic aid to encourage this development, in the way that the US pays off Egypt and Jordan to acquiesce in the existence of Israel. But, unless the Arabs reconcile themselves to the permanent reality of a Jewish state in Palestine, the creation of a Palestinian Arab state will not provide more than the temporary palliative of a tenuous truce between Arabs and Jews.