The no-state solution is a theoretical way to bring an end to the cycle of violence between Israel and the Palestinians. The basic idea is that the West Bank should become part of Jordan and that the Gaza Strip should become part of Egypt, in lieu of the creation of the Palestinian state that has been the ostensible goal of the peace process since at least 1993. The reabsorption of the Palestinian Territories by Arab countries would return the regional situation to where it was from 1948 to 1967, when the West Bank and Gaza Strip were occupied by Jordan and Egypt respectively. The West Bank was formally annexed by Jordan and residents there were made Jordanian citizens, whereas Egypt ruled Gaza through a puppet "All-Palestine Government". Israel's victory in the Six Day War and its fears for the future in 1967 led it to grab the territories, which had been used to stage armed attacks into Israel by Palestinian militants, starting the Israeli occupation.
The no-state solution would simply undo this act, returning the territories to the sovereignty of Arab countries, without involving the creation of a Palestinian state.
I don't personally think the no-state solution is a good idea, and - more importantly - it's even less likely to happen than a two-state solution, for reasons I shall explore shortly. However, it's an interesting thing to think about because it sheds light on a number of aspects of the Palestinian question that we don't usually think about. Its supporters - who include Middle East expert Daniel Pipes - force us to ask a number of interesting questions about our assumptions.
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The first thing you have to ask yourself is: why would anyone want to think about solving this without a two-state solution? The idea of two states, one Israeli and one Palestinian, living side by side in peace, has become engraved in the global consciousness as the Holy Grail of diplomatic breakthroughs. Internationally, and in Israel, the momentum for a two-state solution has never been greater than in recent years. It was the outcome eventually envisaged by the Oslo Accords in 1993, the Camp David summit in 2000, and the Annapolis Conference in 2007. Annapolis was actually the first agreement in which it was explicitly stated that the end result of negotiations would be two states; even at Camp David, this was not hard-wired into the talks, so another outcome was theoretically possible.
Paradoxically, it has been the rise of Hamas that has pushed Israel into an even greater frenzy to try and conclude an agreement with the Palestinians. Hamas have badly undercut their rival Palestinian faction, Fatah, who want to make a deal on a two-state solution and signed up to the Annapolis process. A civil war has raged between the two for years, until Hamas cemented control of the Gaza Strip and Fatah were left with the West Bank. Israel has hence made further concessions to Fatah in an attempt to demonstrate that they are willing to co-operate with a reasonable partner, in an attempt to undercut the appeal of Hamas within the Palestinian territories. Unfortunately, this has not been successful, and Hamas themselves lack the pragmatic streak that would allow them to abandon the violent path and engage in negotiations when Israeli concessions reached the appropriate point.
Because Hamas refuse to talk to Israel about a two-state solution, the idea of a two-state solution is dead in the water for the foreseeable future. Hamas are insistent they will settle for nothing less than the eventual destruction of Israel, which means the Israelis are understandably wary of empowering them further. Israel can never abandon the West Bank to Hamas rule, because it would make the control of weapons smuggling impossible, and because it would mean Hamas rockets could hit all of Israel, including its nuclear facilities and international airport. Israel needs security guarantees to make any two-state solution work, and Hamas resolutely insists it will never provide these guarantees. This is the main roadblock on the path to peace at the moment.
This is why the mind turns to other possibilities. One is the three-state solution - splitting the West Bank and Gaza from each other formally, hence making official the split that exists now - and the other is the no-state solution. The no-state solution seems radical because it means the frustration of Palestinian national aspirations and denying them a state of their own, the attainment of which has been the enduring thrust of diplomatic efforts for decades now. However, a strong argument can be made that these efforts have comprehensively failed; indeed, there is little doubt that we are now further from a two-state solution than we have ever been, due to the apparently irrevocable split in the Palestinian national movement, and the rejection by one half of this movement - and it is the half which is still gaining popularity and momentum, while the other seems like a spent force - of the idea of a two-state solution.
Secondly, the reabsorption of the territories by Jordan and Egypt would return the situation to one which worked tolerably well in the past, and be more in keeping with the way similar disputes are usually solved. The creation of new states is a rarity in recent history indeed, and the return of these territories to Arab sovereignty would mean the Palestinians would be a part of countries to whom they have extensive linguistic, cultural and economic ties. Such are the similarities that they could assimilate as full citizens and not become an oppressed minority, like Iranian Kurds or Egyptian Christians.
Indeed, other groups that have just as large or a stronger claim to statehood or sovereignty in the Middle East than the Palestinians - such as Kurds in Turkey, Iraq, and Iran or the Lebanese under their decades of Syrian occupation - are not the locus of nearly so much violence or international attention, primarily because their occupiers are culturally and ethnically similar. And nor was the uproar for a Palestinian state as strong before 1967 as it became afterwards; we have to separate out the two strands of the Palestinian problem, the first being that they are occupied and the second being that it is Israel doing the occupying. Undoing the second part would still be an improvement, and if Jordan and Egypt could annex the territories fully, then the Palestinians would not be occupied at all; they would be full citizens of Arab countries. This surely would be an improvement over the present situation.
Jordan and Egypt are the two Arab countries with which Israel enjoys the best relations - it has peace treaties with both of them and they are not seen as a short or medium term strategic threat within Israel. Hence, augmenting them would not be a dealbreaking problem for Israelis. It would also mean that the wellbeing of the Palestinians would become the problem of Arab countries rather than Israel - although, as we shall see, this is a crucial factor in Egyptian and Jordanian objections to such a scheme.
The no-state solution also addresses a serious flaw in the two-state paradigm, which is the fact that the Gaza Strip and the West Bank and not contiguous. They are thirty miles apart, across Israeli territory. This would make it extremely difficult for the two to be part of a single administrative structure and for economic ties to develop between the two territories; even with a Palestinian state, they would inevitably have much greater economic links to Jordan and Egypt than each other.
Some people have suggested a highway under Palestinian sovereignty be built between the two, but it seems unlikely that long-term security for either Israel or the Palestinians could be predicated on such a fragile artery, which could rupture and send forth Palestinian militants or be slashed by Israel, with terminal results. It would be a brave Palestinian indeed who predicated the success of his business on the continued operation of a link through Israeli territory; better to trade with Jordan and Egypt. The no-state solution fully recognizes this reality and would allow for better economic development of the two territories in question.
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There's a lot to be said for the no-state solution, then. However, it remains extremely unlikely to come about for numerous reasons. The first and most obvious is that it would not result in the creation of a Palestinian state, on which there is a consensus among many Palestinians, recent Israeli governments, and the international community. This not only will be distasteful to many people on moral grounds - they feel that the Palestinians are entitled to a state - but would also mean we could reasonably expect that Palestinian violence would continue to be projected into Israel from the West Bank and the Gaza Strip. While it might be possible for the armed groups to be gradually marginalized - especially if Jordan and Egypt undertook rapid economic development which might give young Palestinians more reason to live peacefully - this would no doubt continue for some time.
Because the no-state solution would mean dismantling Israeli settlements in the West Bank and perhaps relinquishing sovereignty over East Jerusalem, Israel would need to have a very watertight security guarantee indeed before it agreed to it. Especially after the withdrawals from south Lebanon and Gaza resulted in an increase of violence being projected into Israel - in the latter, Israel ripped down settlements to complete the disengagement - a similar withdrawal from the West Bank is not likely to be contemplated unless it will turn out much better for Israeli interests. The viability of the no-state solution from Israel's point of view rests largely on whether it would bring peace, and its viability from the point of view of Egypt and Jordan rests on similar considerations.
This is because under the no-state solution, Jordan and Egypt would become responsible for the actions of their new Palestinian citizens, and for stopping them from launching missiles into Israel or crossing the border to carry out terrorist attacks. This is superficially an improvement, because it would be Arabs exercising rule over and restraining other Arabs rather than Israelis doing it, but it could also profoundly destabilize Jordan and Egypt. Honesty compels us to recognize that every state which has ever been home to a large Palestinian refugee population has been destabilized as a result, and hence Egypt and Jordan are unwilling to repeat the experience. We need only glance at history to see why this is the case. In "Black September" in 1970, a civil war broke out between Jordan and its Palestinian refugee population after what amounted to a Palestinian attempted coup, and the Palestinian Liberation Organization was eventually driven out of the country into Lebanon. And we have seen how Hezbollah not only continues to pose a threat to Israel but also has destabilized and gradually taken over Lebanon.
For this reason alone, Jordan and Egypt are very wary of a no-state solution. The Egyptians see Gaza and Hamas as a colossal headache because even at the moment, it has a profound influence on the stability of the Mubarak regime in Egypt. Hamas is actually an offshoot of an Egyptian Islamist organization, the Muslim Brotherhood, which is officially banned in Egypt although tolerated. Egypt's policy towards Hamas - which involves helping the Israelis impose a blockade on Gaza - is hence an extremely sensitive issue in Egyptian domestic politics, and if Egypt were to become formally responsible for the Gaza Strip then the issue would become even more troublesome. Egypt would have to disarm Hamas and probably kill many Palestinians, which could destabilize the Egyptian regime. The strip would also be a tremendous economic burden if any attempt at real development were to be attempted.
Hamas would hence play an extremely unsavoury role in Egyptian politics, joining with the Muslim Brotherhood in their goal of establishing an Islamic state in Egypt and across all of the former British mandate of Palestine. Their popularity would probably increase as a result of the no-state solution. Arab regimes, including Egypt, have traditionally used the Palestinian plight as a staple of their propaganda while doing little in practice to address this plight; they are now being undercut by more radical actors like Iran, Hamas and Hezbollah who are actually acting against Israel. If Egypt and Jordan were to frustrate Palestinian national aspirations by annexing the territories, they would be savaged across the Arab world and by Hamas and the Muslim Brotherhood.
The annexation of Gaza would also mean bringing substantial Iranian influence into Egypt's borders, because Hamas has extremely strong links to Iran - including financial links, training and equipment provision by Tehran, and ideological backing. This is unsavoury for Egypt as it is currently locked in a struggle with Iran for the title of regional leader and the claim to represent the Islamic world; Egypt's annexation of Gaza would scarcely help it in this struggle. One Hamas gameplan for the destruction of Israel involves an Islamist takeover of Egypt, spearheaded by the Muslim Brotherhood, which would then turn Egypt's powerful military against Israel; the annexation of Gaza could make this fantasy one step closer to reality by aiding the Islamist cause within Egypt and increasing Iranian influence there.
Because of the pressures that control of the Palestinians would unleash in Egypt and Jordan, it is possible that they would gradually become more hostile to Israel. They would be faced with an alternative between incurring the wrath of the Arab world by controlling violent Palestinian elements, or allowing the elements to tacitly operate as the Lebanese do; the result would be a loss of control over their own security situation, and no doubt also involve Israeli attacks into (what would now be) Jordan and Egypt. It would mean that the two countries would have to decisively act one way or another and make hard choices about what to do, choices which they are extremely keen not to have to make. Jordan especially is reliant on good relations with Israel for continued access to vital water resources.
The desire of the Arab countries not to themselves control the Palestinians is one reason that there is such a push for a two-state solution among the Arab states as well, although Jordan did not abandon its claim to the West Bank until 1988. It has always been obvious that substantial numbers of Palestinians will continue to attack Israel for as long as the state exists - Hamas being the latest example - and no Arab state bordering Israel wants to be responsible for stopping them or accountable for their actions. To paraphrase a British saying, it is better to be outside pissing in than inside pissing all over yourself.
So, for these reasons, the no-state solution remains unviable - even though it might actually, if pursued for long enough, provide the stability and economic growth that could turn the next generation of young Palestinians away from the path of violence and their dreams of destroying Israel towards normal lives. Such conditions might flourish as a result of the no-state solution eventually, but it is likely the whole arrangement would collapse before this point were ever reached.
Also on the Israeli-Palestinian conflict:
Mercaz Harav massacre
Second Lebanon War
Hames vs. the Hilles family
The road to the Annapolis Summit: more despair in the Middle East