Palo Alto, along with all the other inner suburbs of the Bay Area, is cursed with being too close to SF for it to sprout its own gay bars. It's easier to just pick up and drive up to SF, so everybody does it, but then it becomes a vicious cycle since the few times bars in the 'burbs do try to make a go of it, they can't succeed. So up to SF you go.
I believe there is or was a gay bar in Mountain View called King of Clubs, but I haven't been there in years even though I work just down the road from it. Just too easy to go to SF instead.
There may also be some places in San Jose. There's always the Watergarden in San Jose if you're just looking for action - it's a pretty nice facility actually.