Ultimately it boils down to a very simple concept, any group of people who want to have a government should have a government. Miconationalism aside, a people or a nation with a legitimate claim to statehood should be given that right. A nation is different than a nation state. A nation is a group of people who have a common history, culture and language. A state is a political entity. Austria, while an independent state could be considered part of the German nation because they share a similar history, language, culture with Germany and most bits of Switzerland. While on the other end of the spectrum the Cherokee Nation has an independent culture but is not recognized by the international community as sovereign (more on sovereignty later). Palestine is a nation, without a doubt. Now that they have been given observer status at the United Nations they can be seen as a state as well.
What baffles me about the anti-Palestinian Statehood sentiment that Israel has is that Palestinian statehood is only a positive thing for Israel, yet they oppose it. It seems as though Israel is worried about a nation state run by terrorists and they have reason to fear terrorism, yet if Palestine is welcomed into the international community then it will also be accountable to international law. Thus while a terrorist organization may still exist within Palestine the Israeli government can work in conjunction with Palestine's government to bring an end to the terrorism and violence. It is in Israel's favor to have a Palestinian state. Of course what is a draw back for Israel is that it would have to stop its people from illegally settling in the Gaza Strip of West Bank. Yet even still, what's better? An end to terrorism and violence or two small extra bits of land?