Martin, the Palestinians don't want a "Muslim only" state. They want a state for Palestinians, whether they are Muslim, Christian, or Jewish.

I don't know how you can generalize about what "the Palestinians" want. At this point in time, Hamas philosophy guides a large segment of Palestinian society, and that's certainly not what Hamas wants. According to Hamas, every inch of Israel is part of their exclusively-Islamic state of Palestine.

Read these excerpts from the Hamas Covenant and perhaps you'll have a better clue as to what Israel is up against.

'Israel will exist and will continue to exist until Islam will
obliterate it, just as it obliterated others before it.' (Preamble)

'The Islamic Resistance Movement is a distinguished Palestinian movement, whose allegiance is to Allah, and whose way of life is Islam. It strives to raise the banner of Allah over every inch of Palestine.' (Article 6)

'The Day of Judgment will not come about until Moslems fight Jews and
kill them. Then, the Jews will hide behind rocks and trees, and the
rocks and trees will cry out: 'O Moslem, there is a Jew hiding behind
me, come and kill him.' (Article 7)

'The land of Palestine is an Islamic Waqf [Holy   Possession]
consecrated for future Moslem generations until Judgment Day. No one
can renounce it or any part, or abandon it or any part of it.'
(Article 11)

'Palestine is an Islamic land... Since this is the case, the
Liberation of Palestine is an individual duty for every Moslem
wherever he may be...[Peace] initiatives, and so-called peaceful   solutions and international conferences are in contradiction to the principles of the Islamic Resistance Movement... Those conferences are no more than a means to appoint the infidels as arbitrators in the lands of Islam... There is no solution for the Palestinian problem except by Jihad. Initiatives, proposals and international conferences are but a waste of time, an exercise in futility.' (Article 13)

'The day the enemies usurp part of Moslem land, Jihad becomes the
individual duty of every Moslem. In the face of the Jews' usurpation,
it is compulsory that the banner of Jihad be raised.' (Article 15)

'The enemies have been scheming for a long time... and have accumulated huge and influential material wealth. With their money,
they took control of the world media... With their money they stirred
revolutions in various parts of the globe... They stood behind the
French Revolution, the Communist Revolution and most   of   the
revolutions we hear about... With their money they formed secret
organizations - such as the Freemasons, Rotary Clubs and the Lions -
which are spreading around the world, in order to destroy societies
and carry out Zionist interests... They stood behind World War I ...
and formed the League of Nations through which they could rule the
world. They were behind World War II, through which they made huge
financial gains... There is no war going on anywhere without them
having their finger in it.' (Article 22)

'Egypt was, to a great extent, removed from the circle of struggle
[against Zionism] through the treacherous Camp David Agreement. The
Zionists are trying to draw other Arab countries into similar
agreements in order to bring them outside the circle of struggle... Leaving the circle of struggle against Zionism is high treason, and cursed be he who perpetrates such an act...Zionism scheming has no end, and after Palestine, they will covet expansion from the Nile to the Euphrates River. When they have finished digesting the area on which they have laid their hand, they will look forward to more expansion. Their scheme has been laid out in the 'Protocols of the Elders of Zion'...HAMAS regards itself the spearhead and the vanguard of the circle of struggle against World Zionism... Islamic groups all over the Arab world should also do the same, since they are best equipped for their future role in the fight against the warmongering Jews.' (Article 32)

'Ranks will close, fighters joining other fighters, and masses
everywhere in the Islamic world will come forward in response to the
call of duty, loudly proclaiming: 'Hail to Jihad!'. This cry will
reach the heavens and will go on being resounded until liberation is
achieved, the invaders vanquished and Allah's victory comes about.'
(Article 33)