Giving them their own state will not solve anything but make it worse. The Palestinians are determined to remove "the cancer tumor from the midst of the Arab people."
Furthermore, it isn't really Palestinian versus Israel. It's Arab versus Israel. The Palestinians are the weapon in the Arabs hand.
Widening the circle, it isn't Arab versus Israel. It's the Arabs versus the West. The Arabs see Israel as the foothold of Western Civilization on their land. That foothold has only one purpose... to further humilitate and oppress Islam. That is what this war is about.
The fact that the West sides with the Arab by forcing Israel into an impossible retreat of its rights shows the Arabs that the West will not even defend itself.
A wall won't separate Israel from the Arabs. You can't move on from an enemy bent on your destruction and extermination.
You wrote "at some point, even the Palestinians will realize thaty they have most of what they asked for." They have had it since 1993. Oslo gave them control over the 90% of the Area A. That still wasn't enough. They were given everything they wanted in 2000, their response was the intifadah.
Words are cheap in the West. When our leaders speak... most of us take it with a grain of salt because it is nothing more than political rhetoric. Therefore, IMO, we think that Arab rhetoric is just that. But, it isn't. They have proven that they will do what they say. Right now, they lack the proper weapons to take on Israel properly. But, they are ever working to gain control of those weapons.
Israel is the forward guard of this clash of civilizations. Instead of forcing Israel to retreat because the West is terrified of upsetting the Arabs, we need to strengthen Israel's hand and stand with them. After all, their fight is our fight. Remember 9/11. (not that you forgot... I know you haven't. But I bring it up to show that the conflict is the same.)
I think that's unacceptable and that an interim solution has to be found until such time as the Palestinians (or arabs as a whole) come to the conclusion that Israel has a right to exist in peace.