I think they're alluding to the fact that they don't like the current PA, or maybe the Hamas government. In other words they would be in favor of a two-state solution but the Palestinian Arab state would be composed of people who do not exist in reality. You probably want to check the actual Issues page on their website, not just the shorter blurb I quoted.
Am I the only one who thinks that their Iraq policy makes sense, and is probably a good coldly pragmatic solution?
I think they're wildly overestimating Kirkuk's oil industry, though. Not to mention the fact that the Kurds are engaged in (albeit nonviolent) ethnic cleansing.