Very few Israelis are willing to live in a Muslim majority country, or to give up Jewish claims to Eretz Yisrael. Very few Palestinians are willing to live in a non-Muslim country, or to give up their claims to territory that was part of the Islamic world for many centuries. The exceptions a few and far between (many Hareidim would not object to an Islamic state if it respected autonomy for the frum community, some non-Muslim and secular Arabs would not object to living under a non-Muslim government), and most of the exceptions are inclined to move elsewhere (e.g. Europe or America).
So there is really no chance for a peace plan, but politicians have to do something to look busy.