I don't think they made a mistake of engaging in talks. They may have made a mistake in some of the provisions of Oslo. They should have negotiated better provisions in Oslo, because in Oslo, the recognition is not symmetrical. The Palestinians do recognize an Israeli state, but Israel recognizes only the right of the Palestinian Authority to speak in the name of some of the Palestinians.
The idea of a Palestinian state is not present in Oslo at all. It's absent. The only legal reference is resolution 242, which does not mention the word “Palestine” once.