There's a huge feasibility problem there and it depends on what the 2nd state actually ends up looking like. After the 1st Intifada there were steps towards a semi-independence that largely left Israel still in charge. Both sides failed to meet milestones so it didn't go anywhere. I don't think it's possible for Israel to 100% disengage in the territories because the 2 societies are completely intertwined economically and the border situation with labor is messy enough without it actually being a de facto border. If Israel up and vanished one day, it would be really hard for a Palestinian state to self-support

Barring the feasibility question and looking at it from a purely ideological perspective, I think a cessation of hostilities would go a long way towards normalizing relations. I think you'd still always have very nationalist Palestinians who don't accept Israel and Western leftists who will call it occupation, but overall I think meaningful peace is more important to most people.

I don't think the Israeli state is going anywhere. I don't believe it's under any viable threat from any group, be it a state or a sub-state group.

I kept wanting to draw Kosovo/Serbia parallels in my explanation but I'm 1) not comfortable with my knowledge of the region to make that connection and 2) fairly certain the 2 aren't comparable because Palestinians and Kosovars don't recognize each others' irredentist claims as valid.