It did with Egypt and it did with Jordan DECADES ago, and only as a part of the negotiations that gave the land back did Egypt and Jordan recognize Israel (which is the same as recognizing the right to exist). For some bizzare reason it's now OK for Israel to demand recognition before negotiations even happen to give the land back.
Giving land works you say? Now there's a bright idea.
From the moderate palestinian's point of view, this all stops with giving land and their freedoms back.
Straw man sceneario (I know this is not the order of events as it happens, but it is just to clarify what happens overall and why)
1, Ceasefire happens.
2, Palestinians ask for land back, and an end to the occupation,
3, Israel doesn't end the occupation. In fact, increases settlements during lull.
4, What are the moderate Palestinians meant to do?
5, Would peaceful resistance end the occupation?
6, No end to occupation, humanitarian crisis ensues amongst other issues etc etc etc = No state = Calls for resistance.
7. Extremists (resistance fighter/terrorists whatever) fire rockets into Israel.
8. Israel bombs Palestine.
9. Ceasefire happens.
I don't think this situation can go anywhere without a Palestinian state.
Development of the Palestinian territories (green)
1.
1. Historical region of Palestine (as defined by Palestinian Nationalism) showing Israel's 1948 and 1967 borders
2. Official Palestinian territories (West Bank and Gaza Strip) after the First Arab-Israeli War, showing Israel's 1948 and 1967 borders
3. Extant region administered by the Palestinian National Authority (under Oslo 2) after the persistent Israeli occupation since the Six-Day War, shown in the context of Israel's 1948 and 1967 borders