InstaPundit.Com quotes Jerry Pournelle:

Imagine that Israel draws a boundary, and expels all the Palestinians from within it; we hope with compensation. What's outside is now Palestine.

The world gives Palestine a present: the Brits get to run it, rule of law, police, courts, exactly as they ran Hong Kong. This will go for 25 years after which there will be an election.

No taxes: the government is paid for by the international community. There can be some money for infrastructure but again the Brits administer all this.

Think of Hong Kong 1950 and again in 1975. Palestine would be richer than socialist high tax Israel.

But let's remember that Greater Palestine used to be a British protectorate. It was a pain in the butt, and they couldn't get rid of it fast enough. No Islamic state will ever function like Hong Kong. Individual initiative and competition in anything except warfare and idiot martyrdom would be suppressed as anti-Islam.
Islam is about a millenium behind the times, and it has no mechanism for modernizing, except for weaponry needed to conquer the Infidel. It can't change its scriptures, and it has no central authority to reinterpret them. Neither do the Jews, but they long ago decided that education and freedom were good ideas. Their country is composed of too many nationalities and secular groups to allow a strictly religious state. But for Islam religion IS the state and its mandate is to rule the world, not to peacefully coexist.