The discussion becomes dire when nuclear weapons are involved.Iran is going to go nuclear if that happens. There is also possibility of Pakistan issue nuclear umbrella at permission of Russia and China. In a nuclear exchange Israel has no strategic depth to handle a war on all of middle east. One is vast and covered by mountain one is a tiny plain with concentrated population.
Therefore, no matter from the current real interests or the long-term perspective of 30-50 years, the "two-state solution" is one of the few possible solutions under many constraints.
Israel cannot afford a nuclear war. A moderately large nuclear strike (50-200 warheads) could literally wipe Israel from the world.
But for Pakistan, Iran, countries with large populations, vast depths and mountainous areas, their people and even their governments have a high survival rate after being attacked by nuclear weapons.
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