It is not the first time a bi-national state has been proposed as a Palestinian goal, but the new report signals a marked shift in Palestinian thinking at a time when the latest peace talks between Israel and the Palestinians are yet again struggling to make any headway. Questions are now being asked on both sides about the future of the two-state solution that for so long has been the framework of Middle East peacemaking.
The greatest disquiet is on the Palestinian side, where even moderates are now beginning to sense the two-state formula is moving out of reach.
"I feel that a two-state solution is losing currency amongst both our peoples and with the world community beyond," said Salam Fayyad, the Palestinian prime minister and former World Bank and IMF economist, in a speech he wrote for a meeting of former Israeli diplomats yesterday and which was delivered by Riad Malki, the Palestinian foreign minister.
Malki himself admitted that, despite 10 months of talks between Israeli and Palestinian leaders, which began in Annapolis, in the United States, not a single word of agreement had been put on paper. The Annapolis process, the first such peace talks in seven years, were supposed to produce a peace agreement by the end of this year - a goal that has proved wildly unrealistic.
Another group, the Israel-Palestine Centre for Research and Information, published a policy document this week with proposals for the Palestinians to change the status quo. Among the options it said were available were dissolving the Palestinian Authority, calling for a one-state solution and making a Kosovo-style unilateral declaration of independence.
However, it noted that the chief risk of calling for a single, bi-national state was that nothing would change and the status quo would simply worsen given how deeply unpopular the idea is among Israelis. "With so little support from the more powerful neighbour, it seems unlikely that the Palestinian call for unity will bring many positive results in the near term," it said. Instead, it concluded: "We feel that a tightly coordinated non-violent campaign toward statehood is the best option."
One of the key obstacles on the Palestinian side now is the bitter infighting between the two leading factions, Fatah and Hamas. Since last year, Hamas, the Islamist group that won elections in 2006, has been in full control of Gaza and daily seems to be dividing ever further from its rival Fatah, which effectively controls the West Bank. Even if a peace agreement was reached this year, it is hard to see how it might be implemented in Gaza without reconciliation between the rival factions, and for now that seems out of their grasp.
Hamas has long argued against negotiations with Israel. "We don't see any fruits from the political negotiations," Ghazi Hamad, a Hamas advisor said in a recent interview in Gaza. "So we have to make an evaluation for the whole Palestinian national project. Since Madrid in 1991 until now it's been 17 years but we've seen nothing on the ground. How can I convince people that we are going in the right direction?"
On the Israeli side, opinion is more mixed. In general the two-state solution is still broadly regarded as a reasonable goal, although there are many on the rightwing who say Israel should not give up the land it captured in 1967 or who say Israelis have a Biblical right to settle in the West Bank that cannot be negotiated away.
Ehud Olmert, the Israeli prime minister who will step down later this month, has pursued negotiations, arguing that a two-state solution is attainable. On Sunday he will discuss with the cabinet a plan to pay compensation to encourage some of the more distant settlers in the West Bank to move either to Israel or to settlements within the West Bank barrier.
Tzipi Livni, the foreign minister who is likely to replace him as head of the ruling Kadima party, also argues in favour of negotiations and has been deeply involved in the latest talks, although she has said she would resist pressure to hurry the negotiations. Ehud Barak, the defence minister, suggested yesterday that some of the Palestinian areas of Jerusalem might become the future capital of a Palestinian state, an idea which has not always been palatable to Israelis.
Yet there are others beginning to voice different ideas. In a newspaper column in the Yedioth Ahronoth this week, Giora Eiland, a former head of the National Security Council and former national security adviser under Ariel Sharon, said the gap between Israel and the Palestinians was "enormous" and growing.
"The maximum that the Israeli government [any government] will be able to offer the Palestinians [and survive politically] falls short of the minimum that the Palestinian government [any government] can agree to accept [and survive politically]," he wrote. Eiland argued that a final status peace deal "will not be achievable in the foreseeable future" and that new ideas should be considered. He suggested returning control of the West Bank to Jordan, who controlled it before the 1967 war.