In the 1st place, neither Israel, the US, the UN, nor the EU is going to accept a 'settlement" where some Palestinians establish a W. Bank state, while other Palestinians reject Israel's existance and keep fighting from Gaza. This was the original mad Arafat scheme, and it ain't gonna happen. But more importantly, your idea opens up the interesting possibility of a "4-state solution" - Israel withdraws to the 1967 lines and from East Jerusalem, "every inch", with West Jerusalem as their capital, recognized world wide, including by the Arab League. The settlers then declare an independent "State of Judea" in Kiryat Arba, Etzion Bloc, Adumim bloc, East Jerusalem (their capital), Latrun and Ariel, connected by roads in Israel. So maybe only Israel recognizes "Judea", big deal! Abbas gets what's left of the W. Bank, and Hamas zherkers can do what they want in Gaza, with Israel responding to acts of war with massive air strikes, naval blockade, no crossings at all. OK with you?
Saudi-backed forces advance on rebel-held province in Yemen (DPA)
from the article: Report: Abbas reiterates refusal to recognize Israel as 'Jewish state'