It includes several controversial ideas and it is not clear if either side supports it. It could be used to help shape the debate about the conflict. This plan will be presented this week to a senior U.S. official as well as the U.N. secretary-general.
The plan envisions a Palestinian state in all of the West Bank and Gaza, as well as east Jerusalem, which Israel took in 1967's Mideast war. Israel and Palestine would have their own governments, but they would coordinate at an extremely high level on security and infrastructure issues.
This plan would allow nearly 500,000 Jewish settlers to continue living in the occupied West Bank. Large settlements close to the border would be annexed by Israel in a one to one land swap.
Residents living in the West Bank would have the option to relocate or become permanent residents of the state of Palestine. As citizens of Palestine, with permanent residency in Israel, the same number of Palestinians - likely refugees from 1948's war surrounding Israel's creation - would be permitted to move to Israel.
Settlements are a significant obstacle
This initiative is largely based upon the Geneva Accord, a comprehensive, detailed peace plan that was drawn up by prominent Israelis as well as Palestinians in 2003. Former officials were also involved in it. The confederation plan, which is nearly 100 pages long, includes detailed recommendations on how to deal with core issues.
Yossi Beilin (a former high ranking Israeli official and peace negotiator) said that if the mass evacuation of settlers was removed from the table, then the plan would be more palatable to them.
The settlers and their support dominate Israel's political system. They view the West Bank and its history as the Jewish People's historical and biblical heartland and an integral part Israel.
The Palestinians see the settlements as the biggest obstacle to peace and the majority of the international community considers them illegal. The most radical settlers who live deep within the West Bank, and would likely end up within the borders a future Palestinian state, are those living in the West Bank. They oppose any territorial division.
Beilin stated that "if there's no threat of confrontations from the settlers, it would be easier for those who wish to have a 2-state solution." Although the idea was discussed previously, Beilin said that a confederation would make it easier.
There are many other issues that remain. These include security, freedom of movement, and, perhaps most importantly, trust.
The Foreign Ministry of Israel and the Palestinian Authority declined comment.
Two states in a confederation make Thorny issues more manageable, the architects of this plan claim.
Hiba Husseini is the main Palestinian figure behind this initiative. She was a former legal advisor to the Palestinian negotiating teams going back to 1994 and hails from a prominent Jerusalem Jewish family.
Although she acknowledged that the proposal about the settlers was "very controversial", she said that the overall plan would satisfy the core desire of the Palestinians for a state.
She said, "It's going to be difficult." "To attain statehood and the desired right to self-determination, which we have been working towards -- since 1948 -- we must make compromises."
Two states could make it easier to deal with difficult issues such as the conflicting claims to Jerusalem and final borders, or the fate of Palestinian refugees, if they are part of a confederation. This would be a better approach than trying to resolve all details before a final agreement.
Husseini stated, "We are reversing this process and starting from recognition."
For the past ten years, there have not been any serious Mideast talks
It has been almost three decades since Israeli-Palestinian leaders met on the White House lawn in order to sign the Oslo agreements, which launched the peace process.
There have not been any substantive or serious negotiations for more than a decade, despite several rounds of talks that were interrupted by violence.
Naftali Bennett is Israel's current prime minster. He was a former settler leader who opposed Palestinian statehood. Under a rotation agreement, Foreign Minister Yair Lepid will take over as Prime Minister in 2023. He supports a two-state solution.
They are unlikely to be able launch major initiatives as they lead a narrow coalition that spans the political spectrum, from hard-line nationalist parties to a small Arab party.
The Palestinian side is controlled by President Mahmoud Abdulbas. He has limited authority in the occupied West Bank. Gaza is ruled over by Hamas, an Islamic militant group that doesn't recognize Israel's existence. His term as president ended in 2009, and his popularity has declined in recent years. This makes it unlikely that he will be able make any historic compromises.
The two-state solution allowed Israel to exist as both a democracy and a state with a large Jewish population. However, Israel's expansion of settlements, inaction on peace talks, and repeated violence have made it difficult to partition the land.
There is growing support for a two-state solution
The international community continues to believe that a two-state solution is the best way to end the conflict.
However, the ground is changing, especially among young Palestinians who see the conflict as a struggle to equal rights under an apartheid regime.
These allegations are strongly rejected by Israel, which views them as an antisemitic attack against its right to exist. Lapid suggested that Israel could resist any attempts to label it an apartheid nation in international bodies by reviving a diplomatic process with the Palestinians.
Next week, Beilin & Husseini will present the plan to U.S. Assistant Secretary of State Wendy Sherman as well as U.N Secretary-General Antonio Guterres. Beilin claims they have shared drafts with Israeli officials and Palestinian officials.
Beilin claimed that he sent it to people he knew would accept it. It was accepted by everyone. "It doesn't necessarily mean they accept it."
He joked that he didn't have it sent to Hamas. "I don’t know their address."