In 1974 the PLO adopted what is called "The Ten Point Program". It is a program that outlines a phased plan for liberating all of Palestine. Liberating here means liberating it from Israeli rule. Obviously once all of Palestine has been liberated that means there is no Israel at all.
If we take this at face value, that means that any compromise you make with PLO, and therefore any settlement you make with them, will just mean you gave concessions for no reason, because they will later break the deal and continue the war to try to liberate the rest of Palestine.
Although the Ten Point Program is still in official effect within PLO, in 1993, Arafat seemed to contradict it in a press-release saying that "the PLO recognizes the right of the State of Israel to exist in peace and security". ref
But up to 1989, the publication of the book mention in the question, no such statement had been done, and the official policy of PLO was still that the state of Israel had to cease existing.
In light of this, blaming the United States for the lack of settlements is complete and utter Chomsky-style nonsense. It may be that the United States did not want a settlement, but Chomsky provides no evidence of that, and the main reason there was no settlement up to 1993 was that PLO's official policy prevented settlements.
This does of course not mean the US wanted peace in 1989, but Chomsky claims that it is the United States that prevents peace as a part of his general anti-Israel and anti-US agenda, not based on any actual evidence.