The world waited too long and Palestine has lost. What needs to happen next is for the world community to figure out a path forward for relocation and stop dragging out this conflict.
Palestine never really was though, when was it a functioning State? Not after the 48 war, certainly not after the 67 and 73 wars and in the 90s it was returned into a warzone by the succession of intfadas.

The two (is East Jerusalem the 3rd because that's part of the West Bank) bit of land were never really created into a functioning state. After the '48 war they were essentially part of the neighboring arab countries (Gaza-Egypt, West Bank-Jordan). It was not really a state but more of a concept until the late 80s-90s when the peace talks started and the idea of an actual Palestinian state came about. The Palestinian people have more been used as a political football by the surrounding Arab states to keep the Israelis as their boogeyman when politically convenient which is why the various PLO camps in the middle east were never really resettled in the host nations and the inhabitants there never really returned to Palestine once it was seen as a State. These refugees are still waiting for Israeli to be wiped out or at the least the '48 or '67 borders restored before returning home.

It's probably be more fair to create West Bank Republic and either reincorporate Gaza into Egypt (with similar demilitarization guidelines as with Sinai for Egypt and Palestine) or create a Gaza city-state. Palestine itself is economically dependent on Israel for employment and the world at large for aid donations. The little economy it has is essentially ruined at least once a decade when war breaks out again with Israel for a few days to weeks.

The one state solution would be the most fair to Palestine (though would be unfair to Israel)in the long term because the demographics ensure that in a truly democratic government they'd rule Israel-Palestine. This would require abandoning the idea of a Jewish state born out of the aftermath of the Holocaust. In such a state though the power of the security forces, business class, and civil servants would essentially be all Israeli unless forced redistribution of political and economic power and civil service affirmative action as in South Africa are imposed.