When Palestinians talk about a "Palace", what they really mean is a mansion that used to belong to rich families way back when. This is what Al-Kayed's Guesthouse is.
But the fact that it is not the type of palace that we may imagine does not make it less appealing in any way. This beautifully restored guesthouse in Sebastia is a great place to spend a couple of nights and use as a base to explore the nearby area. Kayed, the manager of the guesthouse, is full of useful info and very helpful indeed. And the breakfast, served on a terrace overlooking the hills, is a great inspirational start to the day.
It does get hot in summer, and there is no airconditioning, but fans can be provided...
More info here