It isn't that simple. Do you know how small Israel is?
Let me give you an idea. From my home in Netanya, which is on the coast, to Samaria is just seven miles. A wall will not stop modern weaponry. Imagine the Palestinians with rockets and chemical warheads, for example.
Israel cannot cede the territories or any part of the territories without some sort of security guarantee.
Catch 22: We can't keep the territories and we can't survive without them.
Well, moving the border outward doesn't change that problem. Whereever the border is, there can be rocket attacks over it. You've just changed the line where it can happen.
Only by giving the Palestinians a country can you begin to defuse the root anger. They won't be happy with whatever the border is, but it's a start. In a generation or two, perhaps it will be sufficient.