"De jure legitimacy of a state is acquired when recognized." - the state of Palestine has been recognized by over 100 nations. The issue hinges on wether they hold sovereignty over the land that they want to incorporate it into their State (which, incidently, is why all attempts at annexation via war are illegal). The Palestinians do not hold sovereignty, because the Occupying Powers (both Jordan and Israel) refused them their legitimate right to self-determination after the previous sovereign (Mandated Britain) left. "most of the territory is not under occupation" - the UN, the USA, and the ICJ disagree with you. "They are self governing." - So is Iraq. It is also under occupation. "is Iraq an illigitimate state because it is under occupation by the US?" Hahaha! Occupation does not extinguish sovereignty, Eli. If the state of Iraq held sovereignty over its land prior to 2003 - it did - then it's status as a legitimate state is unchanged by that occupation.
Law expanding definition of terrorist activity passes first Knesset reading (Haaretz)
from the article: Hamas denies Meshal said group would consider recognizing Israel