I believe that the Palestinian conflict will eventually be resolved by a 2 state solution. There are no other logical or practical possibilities. The Palestinians, Arabs or Iranians will not "destroy" Israel (modern countries can't been "destroyed" by another state). Israel will not make the Palestinians go someplace else, nor will they kill them all. I think that Bibi knows this and has chosen not to speak of it due to present political circumstances. But the "road map", which Israel adopted and even Lieberman acknowledged, envisions a Palestinian state. There may be more wars on the way, with lots of suffering on both sides, but eventually the sides will adopt this solution.
The problem at the present is that the Palestinians do not actually appear to want a state. Think about it. When the Jews were offered a state, they accepted what they were offered in 1947. The Palestinians have had 5 opportunities for a state. 1. with the UN partition. 2. in the period of 1948-1967 when Arab countries occupied their areas. 3. With the culmination of Oslo, when Barak offered them a state in 2000 covering 90%+ of the territory they demanded. 4. When Israel withdrew from Gaza, they could have build a mini-state there. 5. When Olmert (evidently) offered Abba a state covering 97% of the territories.
What did they do with these opportunities? They did not build up national and cultural institutions or infrastructure. They did not sieze these opportunities, when they could have had a state on a silver platter, with the blessings of the entire Western world. Instead, they continue to fight for their "rights"-- the rights to all of Palestine, the rights to the Temple Mount/Al Aqsa, the right for a few million "refugees" to return to their original towns and homes in modern day Israel. Now, of course, Israel would not voluntarily agree to self-destruct. Nor can the Palestinians or other Arabs overrun Israel, kick all of the Jews out, and bring all of the Palestinians back. So, unable to compromise and unwilling to accept a partial fulfillment of their dreams, the opted to this day for "Moqawama"-- the arabic word for resistance.
Resistance, in the Muslim context, refers to any act against those who are engaged in the perceived violation of "rights" or against injustice. Any action is legitimate, no matter how violent. More importantly, the resistance doesn't have to be effective, either. It is resistance for the sake of resistance. Now, I'm sure the Muslim themselves view this idea as a moral and lofty goal. The problem is that as long as the Palestinians and their leadership are stuck in their wallowing over how they have been wronged, without being able to get past all of their resentment and anger, they cannot arrive at a practical compromise. So they hold out for all-out "victory", even if it never comes, even if it costs them their lives, their economy, their social fabric and well being. Resistance has become a standard part of the Muslim language, to justify all kinds of things. The Lebanon War was an act of resistance? For what goal? So the Gazans fire rockets at Sderot's civilians. For what goal? What has it brought them?
It is though they are perpetually and tragically stuck, in a state of mourning over their perceived losses and injustices, and they are unable to move on. In insisting on a "just" solution, they eliminate the possibility of realistic compromise. Most Palestinians will settle for nothing less than the dismantlement of Israel. Certain other Muslim groups, like the Iranians, use the Palestinians for their own regional aspirations, by keeping their false hopes alive, making compromise even more remote.