Israel has every intention of allowing a state. Even Netanyahu supports that, the UN has recognized it.Sounds good, then Israel has the responsibility to respect stateliness convention and give them Israeli citizenship if it doesn't have the intention of allowing them to have a state ( Netanyahu confirmed the latter)
The Palestinians are currently blocking the creation of a Palestinian state by refusing to disarm the terrorists and avoiding the peace negotiations.
Once the Palestinians disarm Hamas a deal should be easy to negotiate. Most of the rest of the details have been agreed in previous rounds, everybody knows in broad terms what the deal looks like.