The result of their realizing their earlier error was the intifada. The Jews have always looked at political conflict as a matter of pragmatism, where solutions involve promoting economic interest. Israelis are pragamatic and improvisers, if nothing else. Jews think about politics in terms of Homo Economicus, where man pursues economic interests. Given a territorial compromise that would allow Jews to pursue their personal interests, most Jews would welcome it.
Land is secondary.
Israeli Jews want their own state and to be left in peace and to be comfortable economically. And borders that would allow them to do this would be welcomed by most Jews. Israeli Jews then took this self-image and projected it upon the Arabs. Surely, they reasoned, Arabs want the same things as we do. They want to be left alone and pursue economic comfort.