It's clear (even within the full context of what he wrote then) that Derfner meant to shock Israelis into action against the occupation and for a two-state solution rather than to applaud Palestinian terrorism. I'm somewhat divided on whether The Post should have fired him. Following his apology and explanation, it can be argued that the firing was not justified. On the other hand, The Post faced an understandable backlash from many readers.
His blogging colleague, Dimi Reider, has pointed out that the right-leaning Post does not discipline its right-wing writers for their misdeeds. I'd add that The Jerusalem Post was absolutely wrong for firing Naomi Chazan during the Im Tirtzu-New Israel Fund brouhaha last year.
Robert Mackey, in his NY Times Lede blog, has admirably summed up the issues in this matter. He also includes important links and references, should you want to examine this further.
As for the substance of Derfner's writing, what occupation still means for the Palestinians, I recommend this article by Haaretz West Bank correspondent Amira Hass. Although I can do without her overall anti-Zionist perspective, this is a taste of why I'm recommending it:
.... What does it mean when Supreme Court justices allow the separation barrier to turn the village of Walajeh into a ghetto? Does it mean they're not afraid of the International Court of Justice in the Hague? ... What does it mean that in the midst of a period of calm in the West Bank, Israel Defense Forces soldiers kill two young men in Qalandiyah, that Civil Administration officials issue demolition orders, that the military court arrests Palestinian children on suspicion of throwing rocks and the civil court releases settlers who are suspected of nearly splitting the head of a Palestinian boy?....