There are two huge problems Israel has to face with any proposed solution to its Palestinian problem:
1. Gaza. Israel doesn't want it, but can't give it away because Egypt doesn't want it either. If Gaza became independent, Hamas would goad Israel into an outright shooting war that would be devastating to Gaza, and leave Israel looking like the bad guy no matter WHAT it did.
2. Right of Return. The majority of Israelis would happily agree to allow the West Bank to vote to join Israel, and give Palestinians WHO LIVE IN THE WEST BANK RIGHT NOW Israeli citizenship. Israelis might even be persuaded to cut a deal that recognized Palestinian conversions to non-Orthodox Judaism (like Russian immigrants to Israel have) to encourage cultural assimilation. The problem is, there are a lot of Palestinians who presently live in other countries, like Jordan, who'd demand the right to return and take up the same offer... and the UN would be inclined to agree with them. Israelis would NEVER agree to it.
If the West Bank joined Israel, with Palestinians gaining full voting rights in the Knesset, but with exiled Palestinians remaining exiled and Gaza out of the equation, the balance of power ends up looking something like this:
* "Jewish" parties could hold their noses and form a united (albeit extraordinarily fragile) coalition against "Palestinian" parties.
* "religious" Jewish parties could generally prevail as a plurality against "everyone else", as long as "everyone else" didn't have some single issue uniting them... a single issue that would basically never, ever happen, because it's hard enough for Israeli parties to agree about anything in the first place. When push came to shove, and it became "religious Jews" vs "everyone else", inevitably a few secular-leaning Jewish parties would side with the religious ones and give them their way.
However... if you add millions of EXILED Palestinians to the equation, the whole neat, orderly balance of power gets fucked. Former exiles would agitate against their "heretic" and "sellout" neighbors, and would shift the balance of power enough in the Knesset to throw a monkey wrench into the delicate power-balance outlined above. Furthermore, if it DID go to a vote among Palestinians, most present-day West Bank Palestinians wouldn't vote for any option that encouraged exiles to return, because it would dilute their own status quo that many have carved out for themselves. The Palestinians who left (or were expelled) were generally the most polarized and politicized. The ones who remained (or were allowed to remain) in the West Bank and prospered were the ones most eager TO bury the hatchet and prosper. If exiled Palestinians returned in large numbers, THOSE Palestinians would be the first to be on the receiving end of the returnees' wrath as perceived "sellouts".
Ultimately, Israelis have to play the long game... wait until the majority of bitter, angry exiled Palestinians have died off & their kids have established new lives elsewhere. Every year, the number of exiled Palestinians declines (death from old age, assimilation, etc), and the number of religious Jews slightly increases (due to higher birthrate). Eventually (possibly, but probably not now), the numbers will sufficiently fall into equilibrium long enough to entertain a "one state" solution involving union between the West Bank and Israel. But in any case, Gaza is likely to remain an insurmountable problem for the foreseeable future.