I’d be a bit hesitant to pin much hope on any individual to break the deadlock (you see it with the counter-factual hopes placed on Rabin for example), and I’d worry that the years of imprisonment and time off the scene have raised his stature beyond its worth in terms of peace-making. I suspect his popularity among Palestinians might decline quite sharply were he to emerge from prison and immediately set out to forge a two-state peace with Israel, but perhaps he has the aura about him to overcome that.
From the Israeli side, he’s obviously going to remain suspect as a hero of the two intifadas, particularly the second which, until two weeks ago, was the most traumatic episode for Israeli society in their long confrontation with the Palestinians. And of course as a potentially unifying figure the Israeli anti-peace right that has dominated their governments for almost fifteen years now will be happy to continue to see him rot.