So basically the deal that Arafat turned down in order to "kick-off" the Second Intifada would have done the trick, except for a rather major major fly in the ointment - the terrorist groups that Arafat did not control.

This is bullshit, Teribus. Arafat didn't turn it down in order to "kick-off" the Second Intifada. He turned it down because what was being offered to the Palestinians was an apartheid state in which the Palestinians would be confined to tiny bantustans, ghettos, and concentration camps, and in which they would not be allowed or have the ability to move freely between their various tiny imprisonments, and in which they would be allowed to use only the tiniest fraction of their own water (not even enough for basic survival needs, and certainly not enough to keep their agriculturally based economy).