Bernard Avishai has been talking to the relevant people, and thinks he has pieced together the outlines of the peace agreement the Israelis and the Palestinians were close to reaching. Set aside Bernard's own politics and read his article: his description sounds plausible.
The problem, to my mind, isn't if Abbas and Olmert could have reached an agreement. Perhaps they could have, the fact is they didn't. The problems are if both leaders would have been able to deliver their people, the two nations; and even if so, if the Arab/Muslim world would have been willing to live with a Jewish state, especially one which has been significantly weakened militarily and is open to infiltration, especially in the open city of Jerusalem.
The story of Egypt - the next chapter of which we don't yet know - indicates the danger. More than 30 years after Israel and Egypt signed a peace agreement, the one thing some people on all sides of the current Egyptian events agree on is that Israel is the ultimate evil. Now take that and multiply it by open borders between Israel and Palestine. Egypt, mind you, not Iran. I don't see any scenario in which that gamble can be negotiated away, and I don't see why it's worth taking.
Though I do think Israel should dismantle Ariel.