First, let's examine the rational purpose of suicide terrorism.
Since the Palestinian National Authority (essentially Arafat's PLO) has a policy of fomenting and sponsoring suicide terrorism, as noted above, then it is pertinent to ask: what immediate tactical goal does Arafat hope to achieve? It cannot be military victory; he knows a few suicide terrorists will not militarily defeat a modern army. So Arafat's policy must have a political goal. What is it? In trying to understand a human action, the most reasonable first hypothesis is that it has for goal the effects it actually achieves, especially when the action is engaged in repeatedly, every time reaping the same reward. Since suicide bombing is a political tactic and since political tactics are intended to affect specific audiences, we must ask: who is Arafat's main intended audience? My answer: Western citizens. And what is the repeatedly obtained effect? To make Western citizens think that Palestinians are driven to desperation by oppressive Israelis (certainly with the help of the media, which always interprets Israeli reactions to the latest suicide bombing as the cause of the next, turning the causal arrow on its head).
Hypothesis: Arafat's policy is to foment and sponsor suicide terrorism in order to stage a political theater - a morality play - where the Palestinians are presented as desperate and the Israelis as callously oppressive or worse.
Why do I say that Arafat's target audience is Western citizenry?
Well, most of the "Arab street" hardly needs to be convinced by Arafat to hate the Jews,  and neither do the Arab governments, which already took the lead in several wars of aggression with the explicit goal to destroy Israel. It was only after the Arab states' military defeats in 1967 and 1973 that they switched gears: the best way to destroy Israel, they then decided, was to focus on Arafat, and on making a West Bank Palestinian state a condition of an ostensible "permanent peace". This would destroy Israel's buffer, because a Palestinian state on the West Bank could be armed by the Arab states for a future attack. The new Arab strategy overtly insisted on "justice for the Palestinians" and asked for American intervention to achieve it. The game was thus on to influence the perceptions of Western citizens by presenting the Israelis as oppressors and the Palestinians as victims. Many forces were mobilized to this end, not least the suspected Nazi war criminal Kurt Waldheim, under whose tenure as UN Secretary General (1) Arafat, the antisemitic terrorist, was received at the UN General Assembly with the protocols of a chief of state (1974), and (2) UN resolution 3379 was passed which equated Zionism with racism (1975). Waldheim also did a lot of diplomacy to make the idea of a Palestinian state on the West Bank respectable. It all worked beautifully, so that by 1977, a young Palestinian interviewed by Newsweek could say: "Unlike ten years ago, we now have the sympathy of the entire world."