I suspect that Arafat didn't want peace. Peace would have been a threat to his total power in the PA. That's not the fault of the Palestinians, the modern Arabs have been cursed with poor leadership, this is no secret. What Erekat is saying is that if no peace deal soon, the PA might be dissolved. This would be a catastrophy for Israel. Iran would like to see something like the 2nd Intifada in the WB before launching its planned attack. Without the PA to keep order it's that much easier for Iranian agents to spread chaos and provocation. Israelis don't understand why Israel needs peace with the Palestinians, that's part of the problem.
Israeli PM to Palestinian President Abbas: We must fight terror together (Haaretz)