If the current state of Israel counts as surviving, then yes, it can. Israel dwarfs the military capability of the Palestinians and does what it needs to in order to keep it that way. The liberties Israel takes on the Palestinians are disgusting, some of the extremist groups lying in Palestinian territory do awful things on their own part. It's unstable but unlikely to outright break. It can survive like this, though I have no idea why it is content in doing so.
Even with the recent fighting in Gaza, we have to recognize that Palestinian militant groups do not have the capabilities of threatening the integrity of the State of Israel. Israel has the right to pursue the integrity of it's lands, and the safe existence of it's citizens but it should also realize that Hamas threatens the peace, not the State due to its limited military capabilities.
The rocket attacks out of the Gaza Strip are damaging and deadly, but they have no real chance of destroying Israel itself. Israel does not need to create a Palestinian state because it is not an integral threat to their country, more of a nuisance if anything. Besides, the terrorists would just find a different reason to attack Israel even if they did create a Palestinian state.
If you look at the Conflict. You can see that Israel can't survive without Palestine. If they destoryed Palestine the UN will destory Israel. Israel will be no more without Palestine. So the government should work on Peace. I mean Peace. COME ON EVERYBODY PEACE PEACE PEACE PEACE PEACE PEACE!
I am very pro-Israel, I would love that country to exist forever alongside Palestine. Unfortunately I foresee Israel ceasing to exist as we know it at the current demographic rate, just check the Arab birth rate, those Arabs need to have their own state or in 30-40 years time they will be the majority in Israel, it's as simple as that.
Without a Palestinian state, violence will continue. Until Jews and Arabs learn to get along, decades and centuries of violence will continue. If a Palestinian state guarantees peace, then it should happen sooner rather than later. Israel cannot survive repeated attacks from terrorists working in Palestine and the system will crumble eventually. Both sides must be willing to compromise for peace to happen.