Of course they rejected it. Why would Palestinians give up their land and homes? Why would Catholics in Northern Ireland give up their homes to protestants? Why would South Africans give up their homes to the Dutch? Why would Kashmiris give up their homes to India? Why would Americans give up their homes to the British? etc. etc. etc.
Losing your homes is not a solution like I already said. A 2 state solution is the equivalent of someone forcing you to give them 7.3% of your home, no rent, no compensation, no nothing. Just vibes and the promise that *maybe* the IDF will stop airstrikes against children and innocent people. It's the equivalent of the school bully saying "hey give me 7.3% of your school lunch every day and I won't beat you unconscious". Why should the Palestinian people be content with being colonized? That 7.3% of land housed thousands of disposed Palestinian people who have nowhere else to go. Do they deserve this? Is this a fair solution? Palestinians who live in this land aren't going to be okay with losing their homes just because some governments decided on a 2 state "solution", they will fight to keep their homes just like anyone else would. In addition, Israel has more funding and firepower (thanks to the US) than the Palestinian people could ever have, Israel could easily force more than 7.3% if they wanted to and Palestinians could do nothing about it. I don't see this as a very fair situation.
The establishment of South Africa did not lead to peace, the establishment of Northern Ireland did not lead to peace, why would just another two-state situation lead to peace? Especially one where Palestinians are ejected from their homes and their cultures are erased?
Also, claiming that "they want to expel Jews from Jerusalem because they consider it their holy land" is silly. What about atheist Palestinians who are fighting for liberation? What about Jewish people who support the sovereignty of Palestine? This is about real people with real lives being uprooted from their homes by the government of Israel. Certainly, some people do regard it as a holy land, many great Islamic temples exist across the land (many that have been destroyed by the IDF), but to say this is the whole reason does not fit with the current or historical reality of the region. It's about the fact that Israel wants to create a Jewish ethnostate and the US wants to use Israel as a proxy government for when the US army "leaves" the region, "holy land" is only a pretext. In addition, it's not that Palestinians want to expel Jews necessarily, it's not that they want to create a Muslim ethnostate like Israel wants to create a Jewish ethnostate. Palestinians just want their homes back, their homes that have been stolen by the government of Israel. There can be peace between Muslims and Jewish people, but until Israel stops murdering Muslims and favoring Jewish people in their apartheid state - until dispossessed Palestinians get their homes back, we will not see peace.
It should be noted that many Jewish immigrants who have taken Palestinian homes are from the US, or other countries much richer than Palestine. They could easily go back to their homes the same way they came to Palestine. Palestinians do not have this luxury, they do not have homes to go back to since their homes are actively being occupied. Israel's occupation and eviction and apartheid is genocide, Palestinians evicting colonizers back to their home countries is not. This is not a situation of both sides "wanting to push their other side into the sea" this is a situation of people wanting to keep their homes and lives. Palestine does not have nearly as much power as Israel, they couldn't "push Israel into the sea" even if they wanted to. Israel can do that to Palestinians, and that's what they've been doing for decades. You cannot condemn both sides when there is so clearly a power imbalance between the two, with Israel as colonizer and Palestine as colonial subject.