Palestine is not yet a state, except in its own propaganda and the proclamations of enthusiasts. 

If born, with or without the agreement of Israel, it may be a failed state from the get go. Signs are that it won''t be able to support itself economically, especially if those who choose themselves to lead it continue with their practice of raking off substantial amounts of the foreign aid. 
The widely proclaimed "President of Palestine" has stayed in office for more than four years beyond the expiration of his term. Insofar as the Gaza half of Palestine does not recognize him, we can say that prospects of state failure are well established.
Living alongside such a weakling has its problems, but perhaps no worse than living in any place in a Western country alongside a neighborhood where many residents consider themselves downtrodden and deprived. Violence is likely to be high. Most often it occurs among those unfortunates, but occasionally it spills over to those nearby. Those who think of themselves as miserable teach their children to believe that others are responsible for their problems, and some seek to punish those said to be responsible.
This weekend a 9 year old Israeli girl was the target of punishment. She was shot, apparently with a homemade pistol, while playing in her yard in the settlement of Psagot, whose outlying houses are within shouting distance of the outlying homes of Ramallah.
Often we hear that Palestinians are an invented people. Prior to Israel''s creation, they were simply Arabs. If most had any other identity, it was as Hebronites, Bethlemites, residents of some other locality, Muslims, Christians, Bedouin, or members of an extended family, clan, or tribe. 
The reality is that all national groups are invented, brought together, perhaps by charismatic leaders, from clusters that had thought of themselves as something else. The Hebrew Bible tells, among other things, the story of Jews'' self invention, and how for some time they held onto loyalties toward pre-existing tribes. One can tell similar stories about all the great peoples, among them English, French, Germans, Spanish, Russians, Chinese, and Turks. All of those, and just about all other nations with their own states, have problems with those not wanting to be absorbed. 
The United States prides itself on its multi-culturalism, which came after several generations of boasting that it was a melting pot, until multi-cultural became more fashionable.
If the Palestinians came on the scene much later than many others, their lateness shouldn''t disqualify them from calling themselves a people, or nation. That some citizens of Israel (mostly Arabs but also some Jews) want to call themselves Palestinians, should not bother other Israelis, many of whom identify themselves as Hungarians, Germans, French, Americans, British, Iraqis, Persians, Yemenites, or--don''t laugh--"Anglo-Saxons."
Varda and the rest of her generation, born during the British Mandate, have birth certificates that officially designate them as "Palestinian."
Common sense tells us to concede that the Palestinians have become a people, even while we ponder some of the elements that so far keep them from the makings of a well ordered state.
State building and national building are two separate phenomena. They may overlap in time, but while nation building largely concerns identity, state building has a lot to do with accepting law and discipline, with individual residents constrained from acting against the declared policies of their state.
Here it is necessary to remind ourselves that no states are complete in their development. They all have prisons to confine those who break the more important laws.
The most powerful state of them all, i.e., the US, is a world leader in the proportion of its citizens confined behind prison walls.
So much for the varied success of state building.
Prominent among the problems of Palestine are the geographical, cultural, and political differences between the West Bank and Gaza, and substantial problems in both parts of Palestine resulting from families, gangs, and individuals who do not accept the rule of those considered to be national leaders, whether under the umbrella of Fatah in the West Bank or Hamas in Gaza. 
The ostensible leaders of both the West Bank and Gaza appear to have learned that an organized attack on Israel is not worth their while. However, both have been unable--and to some extent unwilling-- to control gangs and individuals not willing to submit. That explains most of the rocket and mortar firings from Gaza, and most of the violence from the West Bank in recent years.
Right-wing Israeli politicians, some of them members of the government, respond to each attack by demanding the suspension of peace talks, on account of prominent Palestinians who encourage, tolerate, praise--or who do not condemn--what may be individual acts of terror. Prime Minister Netanhayu has complained about Palestinian media that continue to demonize Israelis, and thereby encourage violence. Cooler heads among the professionals in the military or other security forces more often speak about the acts of individuals, not operating as part of a concerted Palestinian operation.
Some of those found responsible by Israeli security forces who go after them have been members of the Palestinian police or other security units of Palestine West Bank or Palestine Gaza. This adds to the doubts about who in Palestine is responsible for one or another incident of violence, and how extensive should be an Israeli operation to assure more days of relative peace.
The same doubts feed into a discussion of how far nation building has proceeded among the Palestinians, and whether they are ready for a state that will not join the list of failed states as soon as it is declared.