This is where we get into the interplay between the UN Charter (which recognizes the right to self determination and statehood) and the Montevideo Convention (which sets out the attributes of a state).
A would-be state doesn't have to meet all of the Montevideo Convention requirements in order for UN members to recognize it as a state, but it is lawful for countries to decline to recognize a state is it does not have all or some of the agreed attributes of a state.
In Palestine's case, the attributes that it does not have are agreed borders (but lots of nations - as you say - Israel included, do not) and having a functioning government.
The Palestinians do not currently have a functioning government: Hamas are the de facto authority in Gaza and the PLO in the West Bank, and they each question the legitimacy of the other.
To date, no state has been newly admitted to the UN without a functioning government. Somalia in 1960 is perhaps the closest case, but even then, it had a transitional government with nominal control and international backing. Shortly agter statehood, we then saw a military coup, then civil wars and state collapse.
What I think you're doing when you say "Palestinians having the same right to self determination and [...] fundemenatal human rights should never be up for debate or negotiation" is conflating the right of self-determination (which Palestinians undoubtedly have) with the criteria for recognizing a state (which are admittedly, indicative rather than prescriptive).
If Palestine had a functioning government (or a unified body capable of becoming a functioning government) then I think the US, UK and other nations' unwillingness to simply recognize statehood would be far less tenable. Unfortunately, Palestine has never truly had that (though the Oslo accords were intended to elevate the PLO into that role), largely as a result of internal divisions.
Declining to recognize a Palestinian state where there isn't, truly, something that resembles a state, isn't in-and-of-itself, a denial of human rights. Its a recognition that declaring "Palestine is a state" does not make it a state. Statehood isnt merely declarative, it is institutional, and that's the key missing piece.
Whether-or-not recognizing statehood regardless is the better course is open to debate.
Even just focussing on the Palestinian perspective: an optimist might say that recognizing statehood gives equal footing and thus enhances the chances of an equitable (and hopefully more stable solution). A pessimist might say that it could inflame divisions between the PLO (who would want to be Palestine's representatives in the process) and Hamas (who might reject the process altogether).
Ultimately, I think the goal of promoting peace (internally and externally) is a reasonable and lawful consideration for the UK to bear in mind, when deciding whether-or-not to recognize a Palestinian state. Given the UK's role in the crisis, I think the UK has arguably the highest degree of responsibility of any 3rd-party group to do all it can to promote peace.
Through that lense, if the two options are "recognize a state to signal profound disagreement with Israel" or "leverage it to stop Israel's continued participation in war crimes", I'm comfortable with the latter, and I fear that the former could be reckless.
And that's without the question of how you get the US on-board.