I just don't see how the Arabs will allow a solution to happen. It is in their best interests to keep the Palestinians in their camps. Without the Palestinians, they would have nothing to distract the "Arab street" with.
On the contrary, the Arab states surrounding Israel the issues of Palestinian camps, rights, and poiltical/military activism are NOT factors that promote stability or in your terms divert the attention of the "Arab street." Begin with Lebanon as a case study and work south.

Secondly I would love to have you define "Arab street"; is that a linguistic definition or a quasi-ethnic definition? The "street" in Damascus is not the same as the "street" in Amman or anywhere else. There are common threads however and the issue of the Palestinians is one of them.

On the issue of Palestinian land in Arab states, depending on the state picked and how you define Palestine, you could make that case--the most common areas would be Jordan (especially the West Bank) and to a lesser degree Gaza. And that goes back to your theory about the Arab states wanting to keep the Palestinian issue bubbling. In the case of Jordan, look at September 1970.

Best

Tom