The way I see it is that Palestinians, just like any other society in the world, are not a conformist and homogenous bunch of peoeple. There are groups within them and there are tonnes of politics going in there.
They do have a Palestinian Authority and then they have groups like Hamas and Hizbollah.
The way to go, IMO, is to invite the Palestinian Authority to the negotiating table, and then give them resources and time to tackle with the violent elements in their own society. Right now, US/Israel do not give them any resources or time to deal with the problem and then publicly castrate them for lack of action and order Israeli tanks to bulldoze the whole process. There is a complete lack of statesmenship displayed by Lekud and esp. Sharon. You can’t really solve a decades old terrirtorial dispute by strong-arming an individual.
Palestinians have leaders, but those leaders are powerless with lack of time and incentive given to them. Sharon has a personality conflict with Arafat and that is the sole reason why the process has stalled in the last few years. Prior to that, Arafat had always said “yes” to peace negotiations even when some of his own people (and muslims) started calling him a traitor to the cause.
If Israel/US do not want to deal with Arafat, that is fine… but when they look at anyone who is loyal to Arafat with suspicion (the new PM, e.g.), then the process is a non-starter.
In the current situation, even if we make Ohioguy as the Prime Minister of Palestinian Authority, he can’t do jack. You can’t stop terrorism through a badly equipped and demoralized police force. Thats essentially what Israel/US expect from Palestinian government. Its hard enough to stop terrorism with the best trained armies, so its clear that there is a big expectation gap that needs to be fixed.