And why would they? Look what happened after they pulled out of Gaza. The Muslims didn’t want peace with Israel then, they don’t want peace with Israel now, and they never will want peace with Israel. Anyone that believes otherwise is a bloody fool.
The definition of insanity would be for Israel to do the same thing over again re: ceding land to their enemies... and to expect a different outcome. Hell no to that.
Palestinians could form a government any time they wanted to, this has nothing to do with getting permission from Israel.
But fact is, they do not WANT to have a government with a physical site from which administration of the duties could be discharged. That would mean they would have to start taking responsibility for their own failures, and they may be compelled to provide for the people under their jurisdiction.
But they do not want to build anything of their own, they want somebody else to build it, then keep on rebuilding the infrastructure every time their rampages end up breaking the physical environment back down to rubble and smoke.