Arafat's main reason for postponing his declaration is the likely Israeli response, which would be to seize land and close the borders to Palestinians working in Israel. Arafat could not afford to allow Israel to punish ordinary Palestinians without giving them anything concrete in return. Also, the foreign friends on whom Arafat depends for political and financial support warned him against going ahead. The Europeans and Japanese warned they wouldn't fund the new state unless it was the outcome of negotiations with Israel.
There's no reason to expect any progress in renewed negotiations. In the statement postponing statehood, the Palestinian Council reiterated that there would be no compromise on Jerusalem, refugees, borders and settlements. And Barak's domestic situation leaves him no room to make any further compromises. So there's no reason to expect an agreement, although they'll keep talking as a way of keeping the situation calm.
In fact, they'll keep talking for a long time to come, now, but both sides are going to return to their domestic problems. Barak has to survive in power, and Arafat, too, faces a growing challenge. The Central Council also voted for the first time to hold new parliamentary and presidential elections, and the Palestinian Authority has previously said it would hold municipal elections. That could present a crisis for Arafat, not only because he's not accustomed to dealing with elected representatives. Hamas has indicated it will participate in municipal elections, and it's likely to win at least 30-40 percent of the vote. Elections would provide an opportunity for ordinary Palestinians to express their dissatisfaction with their leaders. Which is the reason some people don't believe he'll go ahead with them.