This was what the lead PNA negotiator Ahmed Qurei stated in August 10th as the bilateral and unequal negotiations led to yet anothe standstill: claim the West Bank and Gaza as part of Israel, with all its inhabitants - of course.
The position of Al Fatah since the Olso accord has been to claim a pragmatic two-state solution but the reality is that Israel is so much dependent of the military and administrative control of these areas, specially the West Bank and its water, that the concessions have been extremely limited causing a bantustan-like situation in which the PA administers only a scattered territory (as much as Israel allows them, not more) and Israel controls the rest, including the precious groundwater and the Jordan river bank.
The situation in the totality of Palestine (Israel included) is that, even in spite of the recent Russian immigration to Israel, Palestinians are close to be or already are the majority of the people in the territory. This would be even more clear if the refugees in Lebanon and elsewhere would be considered. Therefore if Israel would annex the West Bank and Gaza, Palestinians would dominate the Knesset easily.
This is in line with the spirit of classical Palestinian claims of a single multiethnic state, though the formula is novel. In fact it seems the only democratic solution to the criminal status quo of apartheid against Palestinians in their own homeland. By dropping the two-states solution, less threatening for Israeli identity, the Palestinians would put the Zionist project in a lose-lose situation: they would have no justifications left for the Zionist apartheid and the conflict would become not anymore an "international" one (it has not been since Jordan and Egypt renounced to control the West Bank and Gaza respectively) and become what it actually is: a civil conflict for human rights and democracy and against ethnic apartheid and genocide.
It is an intelligent decission and the only problem is that they are not directly adopting it but actually waving it as threat.