but MM actually goes ahead and describes what the world would look like for this to be true - there would be a Palestinian lobby which dwarfs AIPAC and J-Street in size. And he doesn't notice the world he's describing isn't our own.

That is simply false. MM explains, or perhaps rationalizes, why the Palestinian lobby does not exist: He says that the Palestinian lobby does not exist, because the Palestinians are a proxy of the state department. According to MM the Palestinian lobby does not exist, because the Palestinians do not really exist as a group capable of rationally and selfishly following their own interests.

Which might be just rationalizing away an inconvenient fact, but does explain the curious anomaly that the Palestinians don't rationally and selfishly follow their own collective interests.