I too think it is a sensible position once we stop giving ethnic identities undue weight. The conflict is fueled not by "ancient ethnic" hatred but by gross economic inequality and the lack of economic opportunities for most Palestinians. A multi-state approach will do nothing to reverse it, au contraire, it will create a Palestinian Bantu-stan with limited economic opportunity and thus ripe for demagogues exploiting that situation to escalate hatred and violence.
The argument that a single state solution is impossible given the current psycho-ethnic reality is like saying that socialism is impossible given greedy human nature. It misses the main argument historically advanced by the left that being determines consciousness, not the other way around. If structural conditions facilitating greed or hatred disappear, so will greed and hatred (to a large extent, of course).
A single state solution will likely alleviate structural conditions that produce the current ethnic tensions and eventually the tension will subside. It will not happen overnight, to be sure, but at least there is a chance that the future generation will leave in peace. The status quo or the Bantu-stan solution does not guarantee that, it virtually ascertains that the business as usual will go on for the foreseeable future.
Wojtek