Israel doesn't want a Palestine State and the Palestininans don't want a Jewish State. There is no intention to have negotiations regardless of who leads the Palestinians or who leads Israel. Ever present will be reasons and provocations.
If Bush thinks his two-state solution, expressed in the SOTU, is in America's best interest, the he should unlock these two from their mutual death embrace.
The irony is that even a hypothetical "one-state solution" probably wouldn't change things very much. The region that encompasses Israel and the disputed territories would likely be a dysfunctional, unsustainable nation if there were no Israelis there, or if there were no Palestinians there. It simply doesn't have enough assets to make it anything more than that.