This is a very valid point. Currently, the state is extremely right-winged (compared to past decades) and it is hard to imagine it being capable of accepting this option as a solution because there is still the fear that such a solution would lead to a the loss of the jewish majority.

A simple calculation, 3.3 million in the west bank, 1.7 million inside Israel and 1.8 million in the gaza strip. Without taking the possibility of the refugees returning (which will be the next problem to solve), we have 6.8 million arabs vs. 6.5 million jewish israelis. Any democratic state, no matter how you turn it, will not be able to treat more than 50% of its population as a minority...

This solution is by no means ripe, but many of the arguments of the current right wing ("This is our land!!!") would be levered out, which would make the people on both sides maybe question their enemy stereotype and restructure the political field where the majority is in favor of this solution and only a minority is seeking hatred and destruction.