Israel cannot keep the Palestinians as permanent second class citizens. They really only have two choices, make them citizens of Israel or give them a Palestinian state. No one wants them to be citizens so there should be a Palestinian state.
However, Israel is under no obligation to give them the entire West Bank. Palestine has no historical borders so there is no land to “return” to them. What should be done, and I think what sort of has been done in the past, is Israel needs to offer them a state which comprises say about half of the West Bank carved out in such a way that most if not all of the Jewish communities remain part of Israel. Any Palestinians “stuck” in Israel would become full citizens of Israel and any Jews “stuck” in the new Palestinian state would become full equal citizens in the new state. And if the new Palestinian state would commit act of terrorism against Israel, that would be an act of war by a sovereign nation and Israel should blow them out of the water.
As long as the Palestinian leadership won’t take anything less than the entire West Bank, then the Palestinians won’t get a state, and the only ones to blame are their own leadership.