For the Palestinians, they know that Israel will not stop building, in the long term, on land that Israel believes they have a historical right to occupy and therefore will never give up on the right to be there. Any settlement activity then becomes a great political thorn in the side of the negotiators in that the Palestinians will never give up on that demand as they know it is a non starter with the Israelis. It is the perfect roadblock. Neither side will give up on it.
So where do we go from here. The ONLY way is for the Arab world MUST accept the right of Israel to exist and to end all hostilities. If that were to happen, there would be a willingness of Israel to negotiate a solution. However, without those two, shall we say pre-conditions, Israel should not and will not negotiate.