The problem with that is: The Arabs don't want a "free Palestinian state" they want the destruction of the jewish one. And the death of all jews. They've stated this repeatedly and openly, their charters, their covenants, in their speeches, in their sermons, in their TV and radio broadcasts, in their school textbooks, in their university gatherings, and any other way they have been able to shout loudly, scream and protest to say so
Also the occupation is justified by international law. After the '67 war, the UN passed a carefully-worded resolution that said Israel had been right to occupy Arab territory and should stay there until a final peace had been brokered. The Arab League responded with a statement: 'No peace with Israel, no negotiations with Israel, no recognition of Israel (as a Jewish state)'. So the occupation is not illegal. It will not remain for ever, but it will remain until the Palestinians see what is in their best interests and make and stick to peace. This of course they'll never do, because in part, they have so many gullible useful idiots in the West carrying water for them, thinking that in doing so, they're standing up for an oppressed people against the big, nasty jews.