Why did Herzl's attempt to come to a political agreement with the Ottoman rulers of Palestine fail?

Advise Dr. Herzl not to take any further steps in his project. I cannot give away a handful of the soil of this land for it is not my own, it is for all the Islamic Nation that fought for the sake of this land and watered it with their blood. The Jews may keep their millions. If the Islamic Caliphate is one day destroyed then they will be able to take Palestine without a price. But while I am alive, I would rather push a sword into my body than see the land of Palestine cut and given away from the Islamic State. This will not be. I will not start cutting our bodies while we are alive

From Sultan Abdul Hamid in response to Herzl's suggestion.

Jacques Kornberg, in his essay Theodor Herzl: Zionism as Personal Liberation in the book Theodor Herzl: From Europe to Zion writes:

Jews were not to make humanitarian or moral appeals; diplomacy was to be based on Realpolitik...Herzl played on exaggerated stereotypes of Jewish power by convoking an international congress of Jews in the clear light of day, with maximum publicity, conjuring up the image of a tightly unified international Jewish political movement.

In fact:

Herzl faced serious opposition from Jews to convening an international political congress whose ultimate goal was the establishment of a Jewish state. Many Jews feared that they would be charged with lack of patriotism and were very concerned what the anti-semites would make of it...Zionism prior to Herzl or the Hibbat Zion movement had followed a different course. Under the repressive conditions of Tsarist Russia, it could not openly proclaim political aims. Its goals were modest and long-term...[it] aimed for agricultural colonies in Palestine. Herzl considered this surreptitious infiltration demeaning, for Jews were counting on Ottoman sufferance rather than pressing for their right to a State...[whereas] Hibbat Zion worried that such proclamations would lead the Ottoman authorities to tighten controls on Jewish settlements.

However

Herzls frentic diplomatic efforts failed. In August 1902 he publicly acknowledged that he years of diplomacy at the Ottoman court had come to nothing. On reflection,how could anyone think otherwise? In the nineteenth century the Ottoman Empire had watched its ethnic minorities turn to minorities turn to nationalism and its European possessions shrink. Why would it invite yet another nationalistically minded minority into its Empire?

This is presumably why Herzls Plan to obtain finance from Jewish financiers to pay off the debt of the Ottoman Empire and obtain a charter from the Sultan to develop Palestine as a Jewish homeland received a cool hearing from the financiers with Rothschild for example ridiculing the idea, saying:

"A mass migration of Jews would arouse the enmity of the Bedouin, the mistrust of the Turkish authorities, the jealousy of the Christian colonies and pilgrims, and would undoubtedly lead to the suppression of the established settlements".

Be'eri The Beginning of the Israeli-Palestinian Conflict, 1882-1911

This didn't stop Herzl, in June 1896 he visited Constantinople to obtain an audience with Sultan Abdulhamid II, but he would not see him and was not tempted, he responded through an intermediary:

"My people have won this empire by fighting for it with their blood and have fertilized it with their blood. We will again cover it with our blood before we allow it to be wrested away from u s . . . . Let the Jews save their billions."

Mandel, Arabs and Zionism before World War I

In 1898 Herzl visited Jerusalem for the first time for an audience with the Kaiser Wilhelm II requesting German imperial protection for a Zionist settlement in Palestine; this held his interest as one in ten of his subjects were Jewish. But at a second audience the Kaiser was a lot less receptive as the Sultan had made it quite clear to him in the interim period that he was thoroughly alarmed by Herzls talk of a 'publicly and legally assured home in Palestine'.

Eventually in 1901, Herzl secured an audience with the Sultan himself who in exchange for financing of the Ottoman debt countenanced the idea of Jewish immigration into his empire but stipulated conditions that they became Ottoman subjects, and that his government would decide where settlements could be made but to Herzl dismay he excluded immigration into Palestine, where as Sultan he would have been aware of tensions and violence in the area caused by the already existing Jewish settlements pioneered by the Hibbat Zion movement, as noted by the Israeli Historian, Benny Morris who writes in his book The Righteous Victims:

But the major cause of tension and violence throughout the period 1882-1914 was not accidents, misunderstandings or the attitudes and behaviors of either side, but objective historical conditions and the conflicting interests and goals of the two populations. The Arabs sought instinctively to retain the Arab and Muslim character of the region and to maintain their position as its rightful inhabitants; the Zionists sought radically to change the status quo, buy as much land as possible, settle on it, and eventually turn an Arab-populated country into a Jewish homeland.

Of course Herzl was well aware of these difficulties as his letter to the Foreign Minister of Italy, Tommaso Tittoni shows him trying to finesse the situation:

The Russian declaration of August 12, 1903 goes further than our own proposal. We have not asked for an independent Jewish state in Palestine; we are aware of the difficulties such a pretention would encounter. All that we are asking is the establishment of the Jewish people in Palestine under the suzerainity of his Imperial Majesty the Sultan, but under conditions of legal security. The administration of our colonialization would be incumbent on us. To manage all the susceptibilites of all believers, the Holy Places ought to be exempt and retain extraterritoriality forever.

From the Ottoman government we will only ask for a Charter of Colonialization for the Sandjak of Akka. For this Charter we pledge to pay the Ottoman Treasury an annual rent of one hundred thousand Turkish pounds.

The Sanjak of Akka was a prefecture of the Ottoman Empire located in modern-day Northen Israel. This diplomatic effort of course led nowhere too.

In brief, the Sultan turned down Herzls offer due to the weakening state of the Ottoman Empire and a corresponding rise in nationalism in various ethnic groupings.