Establishing a viable Palestinian state would seem to be at least technically feasible. It is, of course, fairly apparent that doing so would be rather challenging, particularly politically, of course, and given the complexity of the political process aspect of the issue, for now it seems best to focus mostly on what it would take to create the foundations of a viable Palestinian state rather than on how exactly to make it happen politically, and it would also seem reasonable to avoid going deep into the details concerning the solution itself in this post.
The history of the region is obviously fairly complex, and as such it would seem sensible to also not discuss it any more than absolutely necessary in this context in order to avoid going off the main topic.
The territory of the new Palestinian state should be contiguous. The region in question should be divided roughly into two halves, and it seems like an at least somewhat sensible compromise to make the border between them a reasonable line of some kind running from the Mediterranean to the Dead Sea north of Ashdod and Kiryat Gat and south of Jerusalem, all things considered, with the southern half naturally becoming the territory of the new Palestinian state.
The Palestinian state should, of course, also have a robust constitution, and the fledgling state should naturally be closely supervised and guided, preferably by a European body of some kind.
The state should naturally also have a reasonable security policy and a sound economic system with a clear focus on positive liberty. Creating economic opportunities for the Palestinians is, of course, critically important from a security point of view too, since they must have a fairly positive outlook in order for the extremism among them to slowly fade away.
Establishing an education system capable of providing high-quality education is obviously a priority as well.
The tax system should, of course, be fairly simple and relatively easily enforceable, and the euro could perhaps be used as an interim currency.
There naturally should also be a decent social security system without incentive traps, and healthcare charges should be fairly small.
Energy security is, of course, very important as well, and it seems that a combination of at least solar power, pumped storage, and hydrogen storage (naturally in tandem with fuel cells) seems like a feasible basis for a fairly dependable electricity sector. Local related manufacturing should naturally be fostered and the domestic energy market should become competitive as soon as possible in order to drive electricity costs down fairly quickly.
An ample supply of electricity would, of course, also allow for a dependable supply of desalinated water, which would naturally also help with food security.
The new Palestinian state should naturally receive a substantial amount of aid in order to help set it up, but the proportion of financial aid of all of the aid should be as small as possible in order to avoid fostering corruption and long-term financial dependence as well as reasonably possible, and the vast majority of the aid should thus be provided mostly as goods and services, with a particular focus on quality education, of course.
The state should also be given military assistance by an at least mostly European force. Training police and military personnel should naturally be a high priority too.
Establishing full sovereignty over all of the de jure territory of the new state should be left to be the responsibility of the new local armed forces, and the military assistance should become peacekeeping as soon as reasonably possible.
This kind of a solution would obviously have a very significant economic impact on the Jews of the region, but this would seem like a justifiable compromise, as it seems rather reasonable to see the Jews as owing the Palestinians a lot.
The Jewish state could perhaps use its power of expropriation to purchase land and buildings within the territory to be handed over to the Palestinians, and it could then pass the property to an international holding body overseen by the states supervising the new Palestinian state, and if this is done, the property should then be passed to Palestinian ownership as soon as reasonably possible: avoiding corruption in the process as much as possible is obviously very important.
The Jews’ legitimate security concerns regarding all of this should, of course, be acknowledged as such, but it seems obvious that an arrangement like this would also make some security work considerably simpler for them. Both the new Palestinian state and the Jewish state should naturally have to formally recognize each other as legitimate and renounce all claims to each others’ territory for good in a treaty. The treaty should, of course, also specify the total amount of reparations to be paid by the Jews and make it clear that the Jews do not owe Palestinians any per se reparations in excess of what is specified in the treaty.
Economic and social development in Palestine and increased trade between Jews and Palestinians should help considerably in maintaining and reinforcing peace between the two peoples, and it seems plausible that the vast majorities of the peoples of both countries might come to fully accept the new status quo in a generation or two and that the arrangement would prove to be mutually beneficial for them in the long term.