1. The secular Jews and the Palestinians would have an overwhelming majority opening up the possibility of fulfilling the zionist dream of a state where Jews could be free from the yoke of Torah (the עם חפשי they sing about in the zionist anthem).
2. Israel could “transfer” the Palestinians elsewhere, presumably the same way the goyim “transfered” the majority of European Jews in the mid-20th century – but that would alienate the countries that support Israel and probably lead to severe sanction or a UN-sponsored military action against Israel. Note that those who wanted to remove Jews from Europe ended up with the country leveled and their leaders swinging from gallows.
3. A single state including most of the Middle East (the plan the zionists and the Arabs agreed to 100 years ago, that was sabotaged by the Brits), with an autonomous Jewish entity would probably work. The key point is the Arabs have to feel secure that they are living in an Arabic Islamic state, even if it includes a Jewish province with its own military force. The secular Israelis would be nervous about Islamic law (similar to halacha on most social matters), and the religious nationalists see a separate state as a halachic requirement. Hareidim who don’t object to things such as banning abortion or gay rights, or giving up having an Israeli team at the Olympics or an Israeli girl at the MIss Universe contest, would support this arrangement – but Hareidim dropped out of politics after Jacob Israel de Haan was murdered and currently only worry about survival and bits of patronage.