Either one of two things is true:

1. Arafat is in control of the terrorists and giving them their marching orders.

2. Arafat is helpless, and cannot now and never could control the radicals who are committing terrorism.

The former is what one would conclude given the evidence collected so far. The latter is the impression he is trying to give now, complaining that since the Israelis invaded the West Bank the Palestinian Authority no longer has the power to control terrorism. What was stopping the PA from controlling terrorism before the Israelis attacked he does not make clear. Evidence suggests that in fact the PA was in bed with some of the terrorists, but that's not the main point. The same two alternatives apply to the PA as to Arafat: either guilty, or ineffective.

Which of the two alternatives is true is not important. In either case, Arafat has no authority or ability to make a peace treaty. Either a terrorist, or an ineffectual figurehead, he is not the person that Israel should be negotiating with. That no one else suggests themselves as a reasonable alternative is one of those little problems you get when dealing with a totalitarian dictatorship, but an alternative needs to be found.