Israel's strategic problem in historical terms is, ultimately, how to win a war well. The Palestinian problem is to avoid losing this war in the most drawn-out, worst possible way.
Palestinians (including any realistic Hamas leaders), know approximately what they will have to accept. Finding the least bad solution consonant with defeat is their unenviable task. Yet neither is Israel completely free, because victory can be dangerous. Israel needs a strategy that isn't in the end self-defeating.
Realistically, the Israeli-Palestinian dilemma is this: In what circumstances could the strong safely show magnanimity and the weak believe they are getting an acceptable result? Intractable conflicts can sometimes be unblocked by enlarging the problem, by increasing the number of players, stakes and potential rewards.
All the "one-state" solutions - whether bi-national or a federation - are non-starters because Israeli Jews rightly refuse to sacrifice their own interest in a grand gesture of philanthropy.
Majorities in Israeli and Palestinian public opinion would doubtless accept a simple two-state solution if leaders agreed on it. Israel's current government, however, seems not really interested whatever lip-service it is given from time to time. Prime Minister Binyamin Netanyahu's "economic peace" formula in effect replaces the creation of a Palestinian state with Israeli-sponsored economic development in the West Bank combined with an oppressive, volatile political status quo.
A way forward is to find a larger formula that increases the rewards and reduces costs for Israelis and Palestinians, and involves outside states as guarantors. Complexity and flexibility in this case are advantages. What is necessary is an institutional structure that limits to a minimum the binding links for Israel and at the same time provides time and space for Palestinian self-government and proof of competence to evolve, including stopping the violence on both sides.
A minimal, complex and flexible Israeli-Palestinian confederation, here meaning a two-state solution within the confines of a larger confederation, is a promising alternative.
Two sovereign states wrapped in a semi-state, a less-than-a-state.
Confederation - political and economic - could provide what Israelis and Palestinians, and outside powers, want most: guaranteed mutual security of the two states, reliable peace in the region, diminished capacity for Islamist terrorist groups to use the conflict as a pretext, and economic and social progress.
What is a confederation, how does it differ from a one-state solution, and what would be its international legal basis? A confederation differs from a binational single state and also from a federation of two states.
Some states are unitary, ruled entirely from the national capital (France). Others are federations in which power is shared in some balance between a national government and the states that compose it (the US, Germany). A few are confederations (Switzerland is a modern example).