Israel, as it it currently constituted (based on 1967 borders) is not a viable state if the West Bank is a hostile entity with a standing army, and funded to a similar extent as Hezbollah. The West Bank bulges into Israel and effectively cuts the country in half and places all strategic targets within shelling distance.
The Palestinian position seems to be "trust us that if you give us full, un-fettered independence, then we will not be a hostile entity" - but that's asking for Israel to place an enormous amount of trust in present and future Palestinian people and leaders, without any historical reasons to base this on, and highlighted by the worst case scenario of Hezbollah in the north, a foreign-controlled militia funded to the tune of 1 billion / year, and potential a hostile party in the West Bank (and Gaza) - effectively surrounding the country.
And it is more than just demilitarization. A demilitarized Palestine is not enough if, for example, Iran funnels hundreds of millions of dollars in arms to militia groups.
Hence we are where we are .. with Israel unable to disengage because doing so presents an existential risk to their nation.