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That's a really interesting point. Netanyahu and others until recently kept using this argument: Hamas is not legitimate because they do not represent all Palestinians (they were only elected in Gaza). The PA is not completely legitimate, because they do not represent all Palestinians. The problem is that Palestinians have no united front.
So recently, something happened that nobody expected. Hamas and Fatah reconciled. This was not to make Fatah more extreme, but to bring Hamas to the mainstream. Fatah understands that these rockets and violence do little good, and just give Israel an excuse to attack Gaza. So Fatah's position is that peace can only be achieved through dialogue. I think they also understand that if Palestinians look as docile and helpless as possible (no violence), they might gain more sympathy from Western countries.
So now that Hamas and Fatah reconciled, something that Netanyaha had essentially been calling for, he outright rejects them and refuses to continue negotiations. Why? He says that Hamas is a terrorist organization and Israel does not negotiate with terrorist. However, factually, this is untrue. They've negotiated with Hamas and other terrorist organizations many times for prisoner swaps, often giving Hamas back their "terrorists".
http://www.jpost.com/Diplomacy-and-Politics/A-history-of-Israels-prisoner-swaps
It's interesting because the rift between Fatah and Hamas seemed so extreme, that few people could have expected for them to ever come back together. So Netanyahu was caught off guard, and his excuse about Palestinians not having a legitimate united representative, fell apart.
Here are some interesting articles on the subject:
http://normanfinkelstein.com/2014/excellent-commentary-on-hamas-pa-unity-deal/
http://www.haaretz.com/news/middle-east/1.586924
http://zcomm.org/znetarticle/on-ham...when-unity-loses-its-meaning-by-ramzy-baroud/
This is an old but interesting article, on the first Israeli elected to one of Fatah's legislative bodies: http://zcomm.org/znetarticle/the-first-israeli-jew-in-fatah-s-parliament-by-jonathan-cook/
Bibi is utter trash. Peres called him out for that, but Bibi is such a smooth talker, he just brushes it under the rug with another impassioned speech.