The problems in the region can be as much attributed to conflict between different arab states, political forces, clans and tribes as it can to the existence of Israel. If there was such great arab solidarity then Lebanon and Syria would have offered citizenship rather than keeping the 'Palestinian' population as second and third generation refugees without civil rights. The UN also has some responsibility for this, though.
That the Palestinian population has been maintained, and even grown, as a refugee population, rather than quickly re-settled, as with most of the world's other refugees, is a politcal decision.
Yes, Arafat was born in Egypt, though his father had been born in Gaza ( it was Egyptian territory). He was a radical 'Baathist' - an arab who believed in a greater, socialist, pan arab state - hence the enmity towards Middle Eastern monarchies ; and in part why British and other Socialists have always been antagonistic towards Israel. Saddam Hussein was a 'Baathist' too ( turned dictator) - which is why George Galloway supported him.
The idea that a Palestinian state would be secular and socialist seems a bit far fetched though, doesn't it?