The goal of most of the Arab nations, and those currently in charge of the Palestinians, is the utter and complete elimination of Israel. I can link to any number of writings, speeches, Palestinian maps, and other sources to prove this. There may well be Palestinians perfectly willing to let Israel exist, but they are a definite minority, and they are most definitely not running the show.

This is Israel as originally laid out by the U.N. Please note the Arab territory, compared to what they have now. The concept of "Palestinians" as a definite ethnic group had not yet been invented.

The Arabs immediately launched their first war of extermination against Israel.

This is the map after the first war:

Jordan "owned" (it was not widely recognized) the West Bank for almost twenty years, and could have created a Palestinian homeland with the stroke of a pen.

Then, the second war of extermination against Israel in 1967. Oddly, these wars are never factored into Israel's current posture. It's kind of like wondering what the hell the American Indians were so pissed about without factoring in the U.S. Cavalry.

Israel won more territory.

A third war of extermination was attempted in 1973.

Since then, Israel has withdrawn from the Sinai and parts of Lebanon. What has it bought them?

This bit of history needs to be kept in mind when asking one question: If Israel withdrew completely, settlements and all, from the West Bank and Gaza, and turned the territory over completely to Yasser Arafat, do you honestly think the terrorism would end?