Gaza was returned to the Palestinians in 2005 with no pre conditions, the Israeli settlements were left as-is in hope that Palestinians will use it for good. The famous blocked came only a couple of years later when Hamas won the election.
The Palestinian Authority is not recognized as a state for still have embassies in some countries, so at least for a short while there were 3 states but all in a very unstable and fragile state.
Hamas never abandoned the will the eliminate Israel, extremist Israelis never abandoned the will the add more and more settlements without bothering finding a solution to Arabs, the PA is also not trying to find a real solution partly due to corruption and being afraid of their own rivals.
Having lived most of my adult life in the area I can see how everyone have apoint (with a strong exception of extremists and especially Hamas) but on the other hand how a compromise will never be reached.