There is an independent Palestinian state in Gaza. Israel de-facto recognized it. Once Abbas declares the state, Israel must recognize the PA as a state and annex Area C and because the Palestinian state already exist, thus the major problem is solved. No further negotiations will be necessary because territorial conflicts are common all over the world. Israel should only hurt PA economically if they resort to violence.
Firebomb thrown during demonstration in northern Israeli town of Umm al Fahm (Haaretz)