I have a crazy solution personally.
West Bank and Gaza become self governing autonomous zones, not a sovereign state, like Israel wants. But in exchange the Palestinians refugees get to exercise their right of return to Israel. Here's the kicker though, they don't get Israeli citizenship but instead Palestinian citizenship and are only allowed to vote in the elections of the Palestinian territories. In addition Palestinian citizenship, granted to the returning refugees and all currently in Palestine, get a Schengen zone-like access to Israel and vice versa. They can move freely for work or travel or what have you without barriers.
If this is not enough to placate the fears of the Zionists of a Palestinian take over of their democracy then add in a stipulation which requires that the Israeli Prime Minister must be a Jew and the Knesset must have a Jewish majority. Israelis and Palestinians both agree to a set of civil liberties which are protected regardless of which side of the border they are on.
This way, Palestinians have self governance in their remaining territories, Israel maintains its Jewish democracy, and both have access to all of historic Palestine.