If they could work out a two state solution that both sides agree to, that would be great. But that doesn't look possible anymore.
And that really just leaves a one state solution as the real possibility, the choice is whether its a bi-national, apartheid state or a state with equal rights for all.
Personally, the latter sounds better to me.
What other possibilities do you see?
It's premature to declare the two state solution dead. I think claims to the contrary are more or less threats to force a resumption of negotiations ("I don't want to light this fuse, but I will unless...").
I've heard for a long time that everyone knows the real endgame. A state for the Palestinians more or less on the 1967 borders, with negotiated swaps for existing settlements, some share or representation in Jerusalem, some token repatriation for some of the refugees and their descendants with compensation for the others. It won't be palatable to everyone, but that's peace for you.
In comparison, the one state solution is just drawing a border around all the existing problems and hoping for the best. The histories and values and aspirations of the parties involved are just too different to offer much hope of a functioning state.
As I mentioned before, a three state solution makes a lot of sense to me. It's hard enough imagining Hamas and the PA getting along, never mind throwing Jewish politics into the soup. I admit there are problems with that as well, but I can't help but wonder if it's an idea that might smooth the path to peace if it was seriously considered.
One less desirable possibility I see is Israel throwing up its hands and deciding that indefinite status quo is the best they can hope for.