The biggest problem with the two-state solution is the Palestinians themselves won't accept it as seen most recently in 2000 and 2008.  Obama and Kerry misunderstood which side needed to make concessions, that being the Palestinians who were already being offered 96% + of the West Bank plus Gaza plus much of Jerusalem plus land of pre 1967 Israel.  But, a Abba Eban said, the Palestinians never miss an opportunity to miss an opportunity.  Unlikely they'll ever be offered Jerusalem again.

The only good alternative solution to the two-state solution is the three-state solution as outlined by John Bolton in a recent article.  Egypt takes back Gaza and Jordan takes back most of the West Bank.  It would be best for the Palestinians instead of another Arab state, and a particularly kleptocratic and incompetent one at that.  It would definitely be better for Israel than the two-state solution.  

Problem is, Jordan and Egypt don't want the Palestinians - and it's understandable why not.