I used the term "generous" in the context that Israel has twice committed to giving the Palestinians virtually all that they sought.
I just have to say, I don't think the Palestinians saw it that way. It is difficult for me to evaluate how truly important the issue of Jerusalem and (separate) issue of the right of return is for them, but if I remember correctly, those two things were their 'reasons' or 'excuses', depending on your position. But, in any case, again, both matters are only dismissed with talk of generosity when you take into account the relative power balance of the parties to the talks. Really, from a perspective of justification, they have at least as strong a claim as Israel.
I believe you have misunderstood my point about deterrence. I have argued that I hope that an Israeli effort to deter Palestinian unilateralism will succeed precisely so that the situation does not get to the point where power becomes the sole arbiter of the dispute. The dispute should be resolved strictly through negotiations and I have noted that only an agreed solution would widely be viewed as legitimate. Anything else would not. Moreover, the seeds of instability would persist in anything but an agreed solution because historical grievances would be suppressed not overcome.
First, let me say that I do see your point, its plausibility, and how it is a thoughtful way to look at the situation. However, the Palestinians obviously see the possibility of getting more of the concrete things they want if it does devolve into a bald power struggle. Either that, or they see some opportunities in delaying the matter. It may be that the Palestinians don't have an accurate grasp of the situation.
The fact remains that at this time, Israel is taking actions and positions that take advantage of their greater military capability. It may be that the Palestinians should pragmatically cut their losses and accept it. But, I can't get past this: I wouldn't.
I simply cannot see a viable state being formed for the Palestinians, even out of the 1967 borders. Nor do I see, with any kind of redrawing that makes it viable for Palestinians, a viable Israeli state. In other words, with the current (roughly conceived) placement of peoples, the formation of two states doesn't seem viable. It almost seems a pipe dream when I consider it. Or rather a nightmare from which we cannot awake.
This, I believe, is what makes the whole situation somewhat hopeless, and is the true source of the intractability of both parties. I think we avoid seeing the conflict in this way because we want to believe there is a way out.
Security, in all its forms, is what people most want. It is a lot to ask, too much in fact, for either party to countenance living without a certain level of it.
Assuming my assessment is correct, where do they go from here? Well, devising radical or 'outside the box' solutions to the issue is probably outside the scope of this thread. So, I'll just leave the question hanging.