What are any of the options available going to do? They don't have any fundamental fixes for the situation available.
Fundamental to Isreal's problems is that all security issues seem to only have temporary fixes available.
Fundamental to Isreal's problems is that all security issues seem to only have temporary fixes available.
This was said clearly by one of Sharon's advisors explaining the motives for Israel removing settlements from Gaza:
"The significance of the disengagement plan [from Gaza] is the freezing of the peace process, and when you freeze that process, you prevent the establishment of a Palestinian state, and you prevent a discussion on the refugees, the borders and Jerusalem."
Why fund them? Because for whatever reasons, in his later years, Arafat and the PLO were becoming tired of endless conflict and far more diplomatic and open to negotiation. This lead to increasing criticism of Israel because now they were being seen as the stubborn party, refusing to compromise, and increased sympathies for the plight of Palestine.
Israel's hard-right plan for responding to that? Fund Hamas to "beat" the PLO and provide a better target/focus of attention for disdain.
Whatever else you think, let's be clear-eyed about the history of Arafat here. Arafat walked away from his negotiations with Israel, despite what many think were fairly good offers for peace and a two-state solution. (It's common nowadays to think the offers weren't very good, but I disagree, and in any case walking away from negotiations is the opposite of pursuing peace.)
There is very little reason to think that the Palestinians wouldn't have a state today, if Arafat was willing to compromise more with Israel (even after potentially more negotiation).
I definitely don't intend to make Arafat out to be some peace-loving martyr. Maybe not emphasized enough, but my intent in describing him as I did was to say that it was only after decades of violent resistance (regardless of the merit) that he "softened" near the end. And certainly around then there were some decent offers and proposals.)