It's a country not classified as a country. The people have separate IDs/Passports from the Israelis. There are areas where only Palestinians can go and then there are areas where only Israelis can go. There's a giant wall separating the two countries. If you want to cross over, you have to show your documents and they, the officials, can either let you in or send you back. There's a border (thanks to the wall), there's a separate government (even if it's not exactly the ideal one), it's a separate nationality. In my opinion that makes it a separate nation.
Palestine should be considered it's own country independent of any outside governments.