IIRC (can't be arsed to go dig through the piles of political journals I've still lying on the floor after moving waiting for the purchase of a new bookshelf) you indeed are mistaken, or at least not entirely entirely informed of the details. From what I can recall out of hand, the major issue was that Israel was basically selling them short by de facto retaining territorial ownership of a major bunch of the bigger Israeli settlements dotting the West Bank - as well as the roads connecting them, and suchlike. And it just so happens that these are wont to occupy all strategically important terrain, the best farmland, and - a very important detail for agriculture in the region - water deposits.

Anyway, some of the sticking points are covered by the Reasons for impasse part of the same article, and the article on Palestinian state.

Do recall, calling off hostilities with Israel is pretty much the exact one thing the Palestinians can offer. Israel holds pretty much all the rest of the cards (and not a few in blatant breach of international law...), so obviously the Palestinians aren't going to trade off theirs for cheap.