The only question is whether Bush would want to work towards this plan first, or first try to topple Saddam. I would suggest moving against Saddam first, because nation-building takes far longer than regime-whacking, and both building up Palestine and Iraq could be done simultaneously.
I've come to the conclusion that only this or transfer will bring peace to the Middle East, and transfer (forcibly ejecting Palestinians from the territories) is not really a feasible option (it's not nice, either).
Establishing peace in the Middle East would also make Bush look really good, it would win him a large amount of credit from moderates on the world stage, which is necessary if he wants to work multilaterally towards other foreign policy goals.
If Arafat is gone, and the Palestinians feel sufficiently threatened with transfer (if they don't shape up), I think peace is possible. If it's not possible, there's always transfer--and if Israel plays it's cards right, the Palestinians will have only themselves to blame for it.