This article deals with the attitudes of Arabs and Jews in Israel regarding a Palestinian state. These include their images of such a state, the costs and benefits perceived if a Palestinian state were established, and the fears and desires involved, including the desire to keep contact with the Palestinian population in the various life domains. The article will attempt to analyze the extent to which the attitudes toward the establishment of a Palestinian state and its likely character derive from a rational calculus of expected costs and benefits to one's own group.