Iraq has said for a long time that it will send a "Liberation Army" to assist the Palestinians when they are attacked by Israel.
That is why the US wants to take out Saddam ASAP. With Saddam in power, the region will remain unstable. (FWIW, as long as Israel exists, the region will remain unstable)
It is moderately true that the other Arab states could give the "Palestinians" a homeland. There is also some true to the argument that the Palestinians are not liked by the Jordainians, Syrians, Iraqis, etc. However, they are a convenient, regional, tool to be used to push the Israelis into the sea.
Simply put, why would the other arab states create a homeland for the Palestinians, when they can use them as the frontline troops for pushing the Jews back into the sea?
Also, when (not if, but when) Israel decides to exapnd its borders, clean its house, and remove the threat of widespread Palestinian attacks, the other Arab states will join in the regional war. It won't be pretty.
Iraq knows this, and hopes to foment the attack before the US can remove it from that game.