The thing about the Middle East is that everyone predicts that the world will come to an end if we do X, where X can be anything under the sun. Honestly, at this point it's pretty clear that whatever Palestine exists will be what Israel agrees to allow to exist, and I'm fine with that. There may even be a one-state solution or a three-state solution at this point. In any event, Jerusalem won't be given back and it's time everyone realize this.

Of course, no one really cares about the Palestinians anyway. The Saudis, Jordanians and Egyptians want to have Israel on their side in the ongoing and escalating conflict with Iran. Turkey and Qatar are playing the game of supporting radicals to expand influence, and Iran, along with Syria and Lebanon, are directly targeting Israel regardless of what it does.

Add to this the fact that only in Israel is there true freedom of religion, and it's clear that we should continue to support Israel. Only in Israel are people free to join or leave any religion they wish and worship in any manner they like without persecution. Given that, I'd support a Federal system that would look something like this:

Israel is a Federal state with three constituent entities: Israel proper, Judea/Samaria and Gaza (assuming they don't just let Egypt take Gaza back, which would be better from Israel's perspective). Each area elects members to the Knesset. However, the votes of the members from the areas now considered Palestine do not count at all for 10 years, after which time they would only count with respect to infrastructure or other local issues (other than education). Education would be handed over to them after 50 years (to allow for at least two full generations to go through a system that doesn't demonize Israel). Security and foreign policy would only be handed over after 99 years. Prior to that time, Israel would unilaterally decide everything.