Looking at the difficulty over recent decades in negotiating a solution to problems of expanding settlements, rocket attacks, proportional responses and related matters, a one state solution seems like a ridiculous fantasy. The walls and checkpoints in Palestinian territory are not there just for their own safety, but as a signal of a higher aspiration, for a final, lasting peace between states, with a wall uniting them.
The debate over the land in the Isreali-Palestinian conflict has nothing to do with space. The entire conflict is over religion. Being that religion in that region is more powerful than money or peace, it is unrealistic that a little space for Palestinians will resolve all conflict. Those two regions have been virtually at war during the entire existence of mankind.