Can tiny Israel afford to give away land to try to placate the Arabs? Compare Israel to Algeria, just one of the many Arab countries near Israel:
Israel + administrated territories: 27,869 sq. km / 10,760 sq. mi
Ratio, Algeria to Israel: 85:1
Algeria is about 400 times bigger than the West Bank and Gaza combined. Since Algeria is so much bigger than Israel, perhaps the Algerians could afford to give 1% of their land for a state for their Palestinian Arab brethren?