Palestinian Arabs have had many chances to have a two state solution and have chose war every time. Prior to 1967 war, Gaza was occupied by Egypt and the West Bank was occupied by Jordan and there were no Israeli settlements in either territory, yet Israel was a constant target. So it was never about settlements.
In 1947, the UN Partition Resolution offed two stateless people an opportunity to build two independent nations. One chose to build a viable nation and Arabs chose war and it has been like that ever since. This is why Palestinian Arabs have never had an independent state as defined by the UN. The PA has a seat at the UN General Assembly as a non-member state as of 2012