(I highly doubt Marshall was referring to this solution, but it does answer the question, as it is a proposal from a member of the Israeli right -- Dr. Mordechai Kedar, the noted Israeli scholar of Arabic culture and lecturer in the Arabic Studies department at Bar-Ilan University.)
Any solution must pass the following litmus test: will it provide political stability to the Palestinian people?
The Palestinian Authority already fails this test abysmally. It holds power only because of its role as the largest employer in the area, because of the brutal repression it carries out against all dissenters, and because it cooperates with Israeli security forces. While Abbas is reported to be in good health, he's in his 80s and I suggest it's unwise to count on this state of affairs continuing much longer.
At this point, history demonstrates that any solution that involves a state run by Palestinians -- either a two-state solution, or a binational single state -- is liable to either fall into the same mold as the PA -- a secular regime repressing any sort of dissent -- or become like Hamas-run Gaza, a terrorist organization whose goal is to destroy Israel and push sharia law on the world. Neither possibility, nor the even worse case of a pendulum swinging back and forth between the two, can remotely provide political stability to the Palestinian people.
But if we look at the Middle East, there are a few countries who have achieved political stability, and thus economic stability, and even almost fantastic wealth -- the United Arab Emirates, Qatar, Kuwait and Bahrain.
Dr. Kedar's thesis is that these countries (the UAE is actually a loose federation of sovereign states, much like the EU) are each built around a single tribe. Because tribal loyalty is still an extremely powerful force in the Middle East, nation-states built around the traditional tribal structure have far more staying power.
In contrast, Syria, Lebanon, Iraq, Iran, are all aggregates of tribes / ethnic groups / religious groups. The subgroup on top uses brutal force to maintain its hold on all the others, while the other subgroups constantly wage a near-existential battle to reach the top.
Dr. Kedar argues the same is true of the Palestinian people. Fatah is resented by the local families as much for its interloper status as for its failures. Per Dr. Kedar, the measure of tribal loyalty is the degree of intermarriage; the different families generally do not intermarry with each other.
Thus, in order to provide political and economic stability, the international community should push Israel to negotiate directly with the individual families, creating a separate and independent emirate for each one if they so wish. The resultant emirate city-states would be politically stable, because local authorities would have the greatest interest in policing their own people, but would not be resented as some kind of overlordship.
Dr. Kedar has identified 7 polities, in addition to Gaza. Each emirate would act with independent sovereignty, control its own economy, educational system and form of government. They might band together a la the UAE -- United Palestinian Emirates -- or they might keep separate.
This plan also benefits Israel. It addresses Israel's security needs. Stable political systems would be an incredible boon to Israel, but the economic benefits and interactions would outweigh even those.
The stability of the proposed emirates would make them greatly attractive targets for foreign investment. But even the local economy could see rapid gains, particularly if the emirates would leverage agreements with Israel in that direction. For example, Hebron used to have a thriving leather-working industry; but it failed when Israel began importing cheap leather from other sources. As part of the agreements between Hebron and Israel, Hebron could demand an Israeli tax hike on the imported leather, to make Hebron leather profitable once more.
