First, I appreciate the acknowledgment that Arafat was indeed involved with Al-Aqusa (a terrorist group bombing Israeli civilians). Not sure why you think that that would make the US and Israel consider him a suitable interlocutor - I still think that stands in favour of my argument that Sharon was done with him and killed him to create the circumstances for a deal.
Arafat may have reduced funding to Al-Aqusa, but that's because they were on the ropes militarily by 2004. He certainly didn't stop funding because he thought terrorism was an unacceptable option. The simple fact was, that he was funding terrorists after the failure of Camp David, which again, makes him a very bad candidate for the next round of grand bargain negotiation.
To claim that Sharon wasn't looking for a deal is just silly (even if he was often inflammatory and arguably quite evil). The fact that Sharon was looking for a deal was widely acknowledged and published in newspapers - here's a quote from wikipedia: "In May 2003, Sharon endorsed the Road Map for Peace put forth by the United States, European Union, and Russia, which opened a dialogue with Mahmud Abbas, and announced his commitment to the creation of a Palestinian state in the future." https://en.wikipedia.org/wiki/Ariel_Sharon#Founding_of_Kadim... I'd provide more quotes, but this is pretty self evident.
You also seem to suggest that because Sharon was an aggressive guy, he wasn't looking for a deal. That just doesn't follow (especially in the Middle East, where the perception of strength is everything).
You also say "Additionally, Arafat's Fatah group was seen as the one group strong enough to keep Hamas controlled." My response: killing Arafat would / did not prevent Fateh from acting as a counterweight to Hamas. In fact, it's likely that Fateh was ultimately a far better counter-weight to Hamas with Abbas at the helm. Israel was able to work with Fateh to squash Hamas in the West Bank in a way that may well have been impossible with Arafat running the show (supplies of weapons to the Palestinian authority etc).
On an anecdotal note, it was clear on the streets (I was living there at the time), that in many cases, Palestinian policemen went from carrying shitty old AKs to gleaming new M16s within a year after Arafat was out of the picture.