SOVEREIGNTY is something that applies to TERRITORY. It is therefore perfectly possible for you to be sovereign without reaching any agreement with the neighbouring country regarding the status of the line that separates you from them. Therefore it is perfectly possible for the Palestinians to declare that all this T.E.R.R.I.T.O.R.Y. is part of their S.O.V.E.R.E.I.G.N. state, and they can do that without either they nor Israel acknowleging the Green Line to be, well, anything......
Pakistan: Suicide bomber attacks tribal police, killing 4 (Reuters)