In the context a basic understanding of negotiation and leverage, Israel is being asked to give up all the valuable assets (land) in exchange for the least valuable asset (essentially, a verbal promise). Of course, Likud governments have increasingly walked away from negotiations and have been blamed in the global media for being obstructionist and a roadblock to peace. However, the evolution of the Israeli/Palestinian negotiation framework sheds light on why all but the most leftist and deluded of Israelis inevitably conclude that negotiations with the PLO are fruitless and destructive.
The PLO wants the following issues to be up for discussion in any bilateral negotiations: Israel's existence as a Jewish State (and by extension, the right of Jews to national self determination), the rights of Palestinians to freely move back to Israel (while it is illegal for Jews to live in many Arab states and it is acknowledged by PLO leaders that Jews would not be welcome in Palestine) and whether Israel should be able to retain any control over its capital and most important city: Jerusalem. Basically, the PLO wants Israel to sacrifice many of its most basic and fundamental features for the sake of peace. The only basic and fundamental feature the Palestinians are asked to sacrifice is their desire to murder Israelis and Jews around the world. But more importantly, when Israel is asked to put those fundamental issues for negotiation, it is logical that Israelis feel like their entire nation is up for negotiation. When has another country been asked to negotiate away the right of its people to have national self determination? We have become desensitized to it now, but how insane is it that Israel's status as a Jewish state is open to negotiation? How can Israelis feel like the Palestinians, who demand that no Jews live in their midst, are partners in peace when they want to deny Jews the right to self determination? What Israeli government could ever agree on that issue?
Of course, decades of Arab campaigning and media blitzes have convinced much of the world that it is perfectly acceptable to demand that Israel give away anything and everything for peace. Of course, we forget now, decades later, that the peace was broken by the Palestinians, or at the very least, by both sides. In the latter scenario, if both sides broke the peace, shouldn't both sides have to give up something of real value? The Palestinians even refuse to adopt certain fairly rational positions, such as agreeing to a state in the 1967 borders in exchange for renouncing their fabricated "right of return." But even that would not require them to give up anything real in the way that the Israelis are asked to give up land. For example, the PA should have to compensate families killed by terrorist attacks, or, better yet, Palestine must absorb a certain percentage of Arabs living in Israel since Israel must absorb Jews living in the West Bank. Maybe then both sides would be bringing something tangible to the table and allow for a real negotiation. Negotiations with the PLO as they are framed now allow for attacks on Israel and its fundamental features. By continuing to put issues of Israel's Jewishness on the negotiating table, Israeli Jews naturally become very defensive and reactionary because they (rightly) perceive that their self-determination is now up for barter. The same mindset applies to negotiations about dividing or ceding Jerusalem.
If nothing else, by raising issues like whether Israel should be consider a Jewish state, the unelected Mahmoud Abbas, who does not represent that majority of Palestinians, is putting up obstacles to make sure no negotiated settlement is reached. Indeed, Abbas is essentially recreating 1948 and hoping that the outcome will be different. The problem for Abbas is that when he started down the unilateral statehood path, the geopolitics of the region were different. However, Abbas' real hope is that international pressure on Israel will be so strong that the Israelis are essentially constricted from taking effective action like they did in 1948. Back then, Israel was a scrappy underdog that people could cheer for without actually believing they could win. Now, Israel is perceived as a big bully on the block trying to keep the Arabs down. While Abbas may have been banking on Arab military support and now realizes it is not forthcoming (as evidenced at least by the significant shortfall in Arab donations to the PLO this year, which have significantly hampered Palestinian government function), he may be able to ride a wave of anti-Israel feeling in the world's corridors of power to pressure the Israelis to sit idly by as the PLO consolidates its position in the West Bank.
The take home lesson here is this: negotiations will fail no matter how much Israel gives on issues it can actually give on, the UN General Assembly will vote in favor of a Palestinian state, and it will be up to the PLO to decide whether to attempt military actualization of a Palestinian state in the West Bank (Hamas may act, but not as part of any UN-sanctioned process). If it does, we will be going back to the future, essentially recreating the UN Partition and hoping that things go better this time then last time. Somehow that seems like a fairly foolish assumption, but that never bothered Europe and America's leaders before...