One thing needs to be cleared up, not because the other write-ups are necessarily incorrect, but because they don't make something clear: Palestine is a region of land between the Mediterranean Sea and the River Jordan. Nothing less, nothing more. To say there is a dispute between "Israel" and "Palestine" is not only factually inaccurate, but it actually clouds the whole central issue of the conflict, which is the nonexistence of a Palestinian state.
People of goodwill on both sides of the dispute eventually hope there will be a state of Palestine which will be capable of monopolizing violence within its borders and stop the direction of this violence outwards toward Israel. At the moment, there isn't. Going around talking about "Palestine" obfuscates this problem.
On 15 November, 1988 the Palestinian Liberation Organization declared the existence of a state of Palestine. This "state" is today recognized by 94 countries, including all members of the Arab League, a large number of African countries, Russia, and a number of countries in Eastern Europe and Asia. However, it is a mirage. The PLO made its declaration from Algiers and was at the time in control of no actual territory. Nor has such control come about in law or reality since.
The recognition of the "state of Palestine" by various states around the world is, to generalize, forthcoming for two reasons. One is a sympathy for the establishment of an actual Palestinian state, either in the West Bank and the Gaza Strip, or across the whole of historic Palestine (i.e. involving the destruction of Israel). The second and related reason is to try and offer the Palestinians carrots to make them carry out action likely to bring this about, i.e. non-violent action.
One school of diplomacy holds that if you're going to influence someone, you'd best be nice to them. This means you offer them carrots rather than beating them with sticks, and certainly that you carry on talking to them. The basic solution to the Palestinian problem is to encourage the emergence of a legitimate and non-terroristic state which is capable of living peacably side by side with Israel. It makes sense to do everything possible to bring this about, and when the world diplomatically recognized that "state of Palestine", it was doing what it could to encourage Palestinians aspirant to statehood. This does not mean this situation has come about.
The essential meaninglessness of the "state of Palestine" proclaimed by the PLO was first revealed by the launching of the First Intifada, which had begun a year earlier. It was subsequently revealed again and again, every day in the political life of the Palestinian territories. The PLO had no idea the Intifada, which was essentially a popular uprising, was coming, and it could do little to control it once it arrived. The PLO was sat in Algiers, but facts on the ground were being rapidly changed by angry young men in the Gaza Strip and on the West Bank of the River Jordan.
To be a state, the PLO would have to have control over sovereign territory. It demonstrably did not have that in 1988. Nor has it gained it since. Israel had direct control of all of the territory it claimed as its own, and the obviousness of this only waxed and waned as the Israelis chose to exercise this control. The devolution of power to the Palestinian National Authority following the Oslo Accords didn't change this situation. We've all heard about Area A, B and C and the various control or influence the PA is supposed to exercise in these areas. It exercises this control at the leisure of Israel only, as has been frequently shown when Israel has found the situation not to its liking. Nor is Palestinian violence the monopoly of the PA in the Territories, where groups like Hamas roam free.
I don't think I really need to go on racking up evidence, and I don't want to lose you by making you think this is some sort of anti-Palestinian hatchet job. The point is this: I said earlier that the basic solution to the Israeli-Palestinian dispute is the creation of a viable Palestinian state which controls violence in its own society and stops this violence being directed at Israel. Unless you believe in Greater Israel or the destruction of Israel, this is what you want.
This is why it's not wise to go around talking about "Palestine". By making it sound like there's a state of Palestine, the whole problem gets redrawn. There's no "Palestine" for us to talk to, there are just "Palestinians". Over three and a half million of them, many belonging to different political groups with different aims and different beliefs. It's not possible just to "give Palestine what it wants" because we tried that already and discovered that it's an unusually schizophrenic society which contains many people wanting many contradictory things, and of which no-one is in charge. It is this society, not some fantasy "state of Palestine" with which a dialogue needs to be had, and who we need to change the facts on the ground in relation to.
Diplomatic recognition of the PA isn't a terrible idea, because it shows we support the aspirations of the Palestinians to statehood. But then, refusing to recognize it isn't a bad idea either - it shows we think the PA should get tough on extremist groups and cease to be itself terroristic, which it undoubtedly is in part. You can swing both ways on this and the way I swing isn't important. But for as long as the rule of law is over-riden by the law of the gun in Gaza and the West Bank, and for as long as this is the essential fact which needs to change before we can move this sorry mess forward, let's call them the "Palestinian Territories".