I wouldn't worry about this yet. Right now both sides are posturing to boost domestic support for negotiations. I think it's to be expected at this stage that the PLO won't recognise Israel as a Jewish state, and that Israel won't agree to divide Jeruselam, or share the holy sites. But this is only the START of the negotiation process. You don't give up all your cards in the first move! That puts you in a very WEAK bargaining position. Admitting Israel as a Jewish State now, means giving up the Right of Return, which is a key bargaining chip for the PLO going into the negotiations. As the negotiations progress, and both sides agree to shift on certain issues, then we should start to see both Israel and the PLO softening their core demands. I wouldn't be surprised that if Israel indicates a real willingness to be generous over E. Jerusalem,the PLO will be generous over Right of Return. This would include recognition of Israel as a Jewish State (or similar wording to that effect
Law expanding definition of terrorist activity passes first Knesset reading (Haaretz)
from the article: Report: Abbas reiterates refusal to recognize Israel as 'Jewish state'