I agree with that solution. It gives the Jews a few decades at least of a small overall majority.
Muslim/Christians
~3 M West Bank & East Jerusalem
~1.7 M Israel
4.7 M Muslim/Christians vs. 6 M Jews.
However, given the demographics, the non-Jews will eventually become the majority but it will be a problem for future generations to solve.
Besides demographic problems, there are financial ones as well. Annexing the West Bank means that all civilians there will becomes citizens of Israel. So that means Israel must set up resources like more schools for example. It would cost a shitload of money.
If both parties accepted a deal like this, the U.S. and Europe would be so relieved they would double or triple what is going to the Palestinians now. The combined state would make money.
Forget all about it, it is a no go as far as Israel is concerned. While they have upper hand Israel has to do nothing, but the P.A. has before people start dying.