The Palestinian/Israeli conflict remains one of the most intractable and divisive conflicts in the Middle East. Despite the creation of Israel in 1948, and the occupation of the West Bank, Gaza, and East Jerusalem (known collectively as the Occupied Palestinian Territories (OPT)) in 1967, the Palestinian yearning for an independent state has never been extinguished. Since 1991, there have numerous attempts at negotiating a mutually acceptable peace agreement between Palestinians and Israelis that would see the advent of a sovereign Palestine in accordance with the two-state solution. Every one of these efforts has failed. The extensive literature on this topic can be divided broadly into two areas of investigation: one focusing on the vagaries and exigencies of the negotiation process and the diplomatic goals of the various participants, and the other focusing on the continued efficacy of the two-state solution, and with outlining possible alternatives. While these analyses address to varying degrees Palestinian state-building efforts, they fail to address in any detail concomitant Israeli state-formation and state-building efforts that have continued since 1967. This is an important piece of the analytical puzzle when considering the question of why a sovereign Palestine has failed to materialise. Consequently, this paper will argue that one of the key reasons why a Palestinian state has yet to eventuate is that Palestinians and Israelis are engaged in duelling state-formation and state-building exercises. This qualitative analysis will employ a theoretical framework that combines aspects of the state-formation and state-building literature to examine critically the key variables of sovereignty, legitimacy, and nation-building. It will then investigate the operation of these variables in a detailed analysis of critical junctures in the state-formation and state-building activities of Israel and the Palestinian Authority (PA). Specifically, the paper will investigate the contest between Israelis and Palestinians for Westphalian and domestic sovereignty in the OPT, and the raison d’être of Israel’s occupation regime. The paper also examines critically the contest between Israelis and Palestinians over the legitimacy of any prospective Palestinian state. Finally, given the effects of these contests, the paper will analyse the struggle over Palestinian nation-building as it relates to both Israeli and Palestinian state-building efforts. Overall, this analysis aims to provide an alternative explanation as to why a Palestinian state has failed to materialise, and an insight into why this conflict remains intractable.