A point I was trying to make is it's not so mixed as you think. 20% of Israel's population is of Arab origin. They've been living there for 50 years. There are cities where Jews and Arabs (both Israelis) live together just fine. Israel has 200,000 Jewish citizens in the West Bank. East Jerusalem is primarily Palestinian, but essentially surrounded by Israelis. If you look at a map of the West Bank, while the Israelis and Palestinians live in distinct areas, the whole of it is very mixed.
Not sure where you get the 15 million number for Palestinians - including refugees most likely? In any outcome, they will likely have to be recompensated and settled in a variety of areas. I don't know the exact numbers, but having 8 million people come back into Israel/occupied territories is extremely unrealistic in any potential outcome.
I think you were just exaggerating, but the Jewish/WW2 example is much farther off than the analogies I gave. That was Nazi Germany with the purpose of exterminating Jews. Despite the rhetoric, the Israeli/Palestinian conflict is about land, not religion/ideology. Hamas does not represent the whole of Palestine despite what you might think. A sizable Jewish population (~10%) lived in the area for decades (centuries?) alongside the Arabs with no problems.
I don't see any more viable solution. To have two *viable* states, you need a contiguous Palestinian state, and that requires massive relocation of Jewish settlers.
Maybe it won't happen all at once, but the way things are going now, the Palestinians, especially those in the West Bank, are likely to be absorbed into Israel. This is already happening with East Jerusalem where hundreds of thousands of Palestinians live and are more connected to Israel than the rest of the West Bank.