It all boils down to this.  Israel seeks a solution that protects Israel.  There cannot be a solution that could possibly allow Israel to cease to exist in the future.    They will not compromise on security after what happened in 1967.  
Yea, the PLO recognized Israel but does anyone really believe them?  Arafat said he would be assassinated if he ever struck a peace deal.  I would love for a reputable polling company to tell us what Palestinians really think.  Their own pollsters show about a 50/50 divide between seeking peace and continuing the armed intifada, give or take 10 points depending on when the poll is taken.  If that's true, I don't see peace happening anytime soon.  If those number can get to the 70% level in support of peace it's a different story.