Few reasons (in my view anyway):
They consider themselves to be in the right and will strive to achieve what they believe is their right of returning to their homeland. History is littered with groups who resist against overwhelming odds to attempt to achieve what they consider to be just. Some of them achieve it. Some of them.......
I assume some of the leaders believe that eventually the Israelis will end up having to make a decision between the occupation and democracy (whether other people agree that Israel is a democracy or not is irrelevant in this case, I'm talking about the perception within Israel). I think they know that (despite Fearless' dream), the world will not allow another 48, an ethnic cleansing of the West Bank Palestinians to Jordan/ all these countries worldwide that are apparently going to readily accept 11 million Palestinians. In that case, it becomes a case of seeing what Israel chooses.
Many of the Palestinians I know have effectively given up. They feel like they have already lost everything. Their rights, their land, their dignity, their allies and in many cases, their lives. For them, there is nothing more to lose. In that case, they see the terms being imposed on them as yet another humiliation. Why attempt to negotiate in this way when they are perhaps at their lowest point?
Whether I agree with this or not is of course a moot point.
As an aside, Fearless is by some distance the most distasteful and reprehensible poster I have ever come across on any forum. A truly worrying individual.