Since Fatah, now a member of a unified government with Hamas, has refused to give ground on any of its demands with Israel, it is important to see what a Fatah "peace agreement" would look like if Israel actually accepted it. After all, Ehud Barak's government offered the PLO statehood in Gaza and 98% of the West Bank and was flatly turned down by Yasser Arafat. It is hard to believe that the PLO will ever get a better offer out of the Israeli government.
Fatah's view of "peace" with Israel has two key components: (1) full withdrawal of all Israeli security and Jews from the West Bank and Gaza, coupled with the creation of an independent Palestinian state in those territories and (2) the unconditional right of return for Palestinian refugees displaced in the 1948 War (or their descendants) wishing to return to where they formerly lived in Israel.
There are several functional problems with an independent Palestinian state coming into existence in the West Bank and Gaza. Many of these issues are not thoroughly analyzed in the media, but foremost among them is the fact that in 1974, the PLO, then based in Cairo, issued a "Phased Plan" that sought to destroy Israel in three stages:
1. Through the “armed struggle” to establish an “independent combatant national authority” over any territory that is “liberated” from Israeli rule. (Article 2)
3. To provoke an all-out war in which Israel’s Arab neighbors destroy it entirely (“liberate all Palestinia
The international context really crystallizes this problem. Palestine was not the only territory partitioned in 1947. That year, two nations: India and Pakistan, came into existence. The resulting partition entailed a massive population exchanges with more than 14 million Muslims and Hindus moving to the nation that held their religious majority. Today, nobody seriously considers a "right of return" for Hindus and Muslims who left Pakistan or India because the existence of a national homeland has made such a right of return unnecessary because those peoples' self determination goals have been satisfied by the creation of their states. For Israel to be subject to an independent Palestine and a large scale right of return is simply unprecedented in the post-colonial world and can be justified only by a desire to deprive Jews of their self-determination.
While of the two core goals of "Palestinian peace" are often discussed in isolation, I find it more useful to view them together. What Fatah is proposing through its "peace plan" can be best described as having their cake and eating it too, wanting not only have their own state but also to demographically overwhelm Israel. In fact, the Palestinians would functionally have two states, because Jordan is already a state that has a Palestinian majority. The world according to Fatah has Jordan, Palestine and a State of Israel that is majority Arab, and has no room for Jewish self determination whatsoever.
Since the PLO has refused to concede any of the key components of its "peace plan," it is inconceivable that that any Israeli government can make peace with the PLO since doing so necessarily means destroying Israel as a Jewish state and renouncing Jewish self determination. Even the most leftist Israeli governments have been unwilling to go that far, and successive failures to extract any concessions from the PLO have driven the Israeli people to elect more right wing politicians like Benjamin Netanyahu and Avigdor Lieberman.