I disagree with the idea that the Arab proposal is not credible (if that is what is being suggested). There is no reason to think that.

Israel's populace, I'm sure, believes in the idea of existential threats coming from outside sources. The government knows better. Their leaders at various times in Israel's history have said as much. They say that it's necessary to make their people believe that their existence is under threat in order to make them want to do the bidding of the government (of course, they are hardly unique in that regard). They have also, at various times, said that the borders of the Jewish state are the business of the Jews and no one else. The real existential threat, of course, comes from within. The longer Israel holds out on relinquishing the lands it took in 1967, the more likely Israel and occupied Palestine will end up being a single democratic state of all of its people. In other words, the two state solution will be dead, and the one state solution will resolve itself like South Africa.