With some dickering, this could work.
The Palestinians would want crossing rights to directly connect the two parts of their country.
The Israelis definitely want some special consideration for the Old City, which has places sacred to all the parties involved.
The right of return cuts both ways. What about Christian Arabs displaced from Jerusalem, Bethlehem and Nazareth? Those places used to be majority Christian, before Jordan conducted its programs against Jews and Christians.
Also, what about the Jews expelled from Iraq and other Muslim countries? And, what about the Jews expelled from the Jewish settlements on the Jordanian side of the green line, who returned to those settlements after the 1967 war. What right of return do they get?
Finally, there are irregularities to the cease fire line ending the 1949 war that is called the Green Line, that make no sense as a permanent border.
But, all of these things are like so many little details. If the other side accepts the principle of a two-state solution, they can be worked out.
It is not hard to imagine some swaps of land and some netting of the right of return. For example, evacuation of settlements on the wrong side of the Green Line, straightening of the Green Line, and extension of West Jerusalem (Israeli Jerusalem) to the Old City, along with shared sovereignty of the Old City. Each country could then establish its capital in Jerusalem.
With regard to displaced Arabs, Israel has stated it will accept those who can demonstrate that they were owners of land prior to fleeing the place when hostilities broke out. (Israel has a significant Arab minority, and those people do quite nicely in terms of education, economic opportunity, representation in government, and so forth.) These individuals, plus netting of displaced Arabs against displaced Jews should satisfy the responsibility of Israel. The Arab countries and in particular Palestine should take responsibility for the remaining displaced Arabs, Christian as well as Muslim. But, whether they do or not, is not Israel’s concern.
With a resolution of the Arab-Israeli conflict, the spigot to UN refugee money should be shut off. The Arabs who have been living in tent cities (which have become brick and mortar cities) will have to get about life as free persons.
As there can be no binding oaths between men and lions, neither can wolves and lambs ever be of one mind, but hate each other for ever and ever. -The Iliad
No. When the stated goal, over and over, is the complete destruction of Israel, regardless of agreements, it won’t work.