First, one should look at the THREAT of a unilateral declaration of an independent Palestinian state. This certainly advances the peace talks, because while Netanyahu seems paralyzed, the US and the Europeans may not be and they will put pressure on Israel to move. They know that a declaration of independence will complicate the international situation. Note that in order to be credible, the Palestinians must be actually willing to do the declaration. Second, such a declaration of Palestine independence will only take place if the peace process is stuck. In this case, a declaration is simply better than doing nothing. At least it will lead to shaking up the diplomatic situation. Recall that Sadat's goal in the 1973 war was exactly this, and he ended up getting his land back.
Palestinian Red Crescent: 568 Palestinians wounded in W. Bank and E. Jerusalem on Saturday (Haaretz)
from the article: Three cheers for Israel's right