Many explanations have been offered as to why Israel and the Palestinians came to the realization that the conflict could be resolved only by a negotiated settlement. Three factors are frequently cited: the intifada, the Gulf War and the end of the Cold War.
The intifada had a direct and significant impact on both parties. Over four years, Israel attempted all kinds of strategies to end the intifada with- out success. The situation escalated during 1990-1991, when the intifada spread into Israel's pre-1967 borders with stabbing attacks by Palestinians on Israeli civilians. Moreover, Israel's international reputation was suffering because of the actions taken against the Palestinian population under occupation. For the Palestinians, the intifada activated the struggle for independence in the occupied territories and strengthened the “inside” leadership, who wanted a two-state solution, that is, recognition of lsrael within the pre-1967 borders and a Palestinian state in the West Bank and the Gaza Strip. That process culminated in 1988 when the PLO implicitly recognized Israel and declared a Palestinian state in the West Bank and Gaza with Jerusalem as its capital.
After the Gulf War, the PLO found itself in political and economic isolation as a consequence of its support for Saddam Hussein. For Israel, the Gulf War demonstrated that the United States did not necessarily regard Israel as a “strategic asset” in the region. With the end of the Cold War, United States was now able to build regional alliances with other Arab states, including Syria, There was concern in Israel as to the implications of the Gulf War and the end of the Cold War for the “special relationship” between the United States and Israel
With the end of superpower rivalry in the Middle East, a greater pragmatism toward the Arab-lsraeli conflict was discernible among Arab regimes. This encouraged the United States, after the Gulf War, to assume an active mediating approach to the Arab-Israeli conflict, aimed at facilitating a peace process. The U.S. administration actively sought the parties’ consent to convene a peace conference, which materialized at Madrid in 1991. This process involved a great deal of "pushing and pulling" by then Secretary of State James Baker, who "exercised precisely the right amount of pressure on all parties to ensure that the conference took place" (Peres 1995 316). Both Israel and the Palestinians reluctantly agreed to negotiate.