The Saudis wouldn't entertain peace with Israel in order to improve the domestic situation in ISrael (or the one between the PA and Israel). Why would the Saudis spend political capital to strengthen a rival (Israel). The only way Riyadh will make a deal with the Israelis is in order to counter the growing Iranian threat. No Arab country, especially the Saudis, want to see Iran become the leader of the middle east and they certainly don't want to see Persians with nuclear weapons. It is in the best interest of Israel to use the Iranian threat to end its problems with the Arab world and focus itself on its new most pressing threat-one common to both Israelis and Arabs-Iran.
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Former IDF general Avigdor 'Yanush' Ben-Gal dies at 80 (Haaretz)
from the article: The Peace Process / Only Saudi Arabia can do it