BEagle, I believe that Arafat still holds a lot of the power. He is extremely wealthy from all the money he has siphoned away over the years and that wealth allows him to have some control. I also agree that his henchmen are as responsible as he is and it is with their assistance that he still has influence.
Don't forget that the current leadership of the PLO is similar to the Baathist regime in Iraq and Syria who they have never had a problem in admiring. Anyone who is not a part of the regime will not go very far and should they be so brave as to publicly oppose the regime or the leadership they are very likely to find themselves having difficulty breathing. One of the reasons that you don't hear the voice of moderation a call for the cessation of Shahid. Rather you hear the two faced condemnation on the one hand and the justification on the other.
Once there is some sign of responsible control being shown from the Palestinian leadership and a proper attempt is being made to stop the fundamentalist fanatics from trying to provoke the Israelis through suicide murders then I believe that the Israelis will be more prepared to elect parties that are prepared to talk with the Palestinians. At the moment the problem for the Israelis and the Palestinians is that the hard line Israeli parties are getting elected with the balance of power being dictated by the numerous right wing religious parties in a coalition government. Once the electorate feels confident enough that the Palestinians representatives really mean that they want peace and to negotiate then they will be more inclined to elect a less radical coalition.
At the last election the Shinui party were shown to be gaining popularity due to the fact that they were against the minor religious parties hijacking the government. I am fairly sure that they will still elect a hard line government but the balance of power will eventually lie with the majority secular parties. A hard liner is more likely to get the Palestinians to clean up their act and get them back to the negotiating table whilst the secular parties will not allow the right wingers to sabotage with unreasonable demands such as more settlements.
Israel never shied away from removing the settlements and even the new towns they set up in the Sinai after the 1967 war once the Egyptians agreed to a peace deal and I believe that they would repeat the painful exercise should there be a realistic opportunity again. However, the current policy of the Palestinian leadership in subversively promoting attacks on Israel whilst claiming to be innocent victims of Israeli occupation when the Israelis have always been willing to negotiate land for peace will only prolong the suffering of their people.