Bibi's bluster does nothing for security
As Shekar also points out in his comment, I'm not sure a single state solution is possible as things stand today. That's primarily because merging Gaza and West Bank into Israel with its current populations intact will leave Jews and Arabs in roughly equal numbers (about 7 million each), which is contrary to the establishing principles for the state of Israel. Given the wide income/wealth gaps and other socio-economic factors it is possible that the Jewish population will become a minority. For this reason the two state solution in my opinion is more practical.
Extrapolating the suggestion of willful ignorance by the Israeli establishment of the Hamas attack, one can theorize that the sequence of events support a logical consequence where Gaza is depopulated for later annexation into Israel. Egypt's position of keeping the Rafah crossing closed in spite of the pressure cooker situation in Gaza, might indicate a similar thinking in Cairo. Once the valve is opened, the population could be pushed through, doors shut behind them, permanently. This is detrimental to the security of Egypt, with the risk of turning it into another Lebanon, putting it in a permanent state of friction with Israel, and the west.
Going back to the single state solution, that becomes a possibility with Gaza annexed, part of West Bank occupied, and a new pressure cooker created within West Bank. One can only hope this is not where Israel is heading, given today's ultra-nationalistic sentiments the world over.
It's laudable, yet surprising that you managed to write the entire post without once using the words 'Jew' or 'Jewish'... Israel's raison d'etre is to be 'the Jewish' state - it wasn't established, and doesn't see its reason to exist, to be a democratic place where the inhabitants of the area within its geographical boundaries can live a happy life of economic prosperity - it exists to be the Jewish homeland. The one-state solution is impossible not because Jews and Arabs can't or won't live peacefully together - it is impossible because it will mean the end of Israel as a Jewish state. Israel cannot "join the West" because there are no religious nation-states in the West. Don't you think you are disregarding this very key aspect that has enormous bearing?