Tel Aviv is a pleasant city, a relief after the clergy-led madness of Jerusalem, a place of laid-back street cafés and real shops and decent restaurants, although I am reminded of a rival British newspaper that once considered basing its correspondent in Tel Aviv in order to report Israel as a normal country.

The paper quickly realised that Israel is not a normal country; it is a state wherein we nice friendly Western liberals – for this is how we like to think of ourselves – seek out nice friendly liberal Israelis in order to recapture something we were once taught about: a light among the nations. I'm not sure that such countries ever exist, but it was good to stroll into a dull-looking Tel Aviv office block and find a reserve colonel in the Israeli army who talks sense.

Shaul Arieli runs his fingers over a keyboard and his desktop screen produces a mass of green and orange and red that turns out to be a map of the West Bank. How do you make sense of it, this liver-sized mess with its weird Areas A, B and C, the first being Palestinian-"controlled", the second shared between Palestinian police and Israeli troops, and the third – by far the largest part – occupied by the Israeli army? How do you persuade, cajole, force the 300,000 Jewish colonists and the 200,000 Jewish settlers in east Jerusalem to up sticks and leave so that the Palestinians can live independently in the 22 per cent of mandate Palestine that is left to them? Since Barack Obama demanded a permanent freeze to these vast concrete cities and towns – and was crushed by Bibi Netanyahu's refusal – a Palestinian state is a non-starter. I should add that Arieli was one of those Israeli officials responsible for portioning out Areas A and B back in 1994.

But Arieli, who last wore his uniform at the end of 2001, was a negotiator of the Geneva accords, the unofficial Israeli-Palestinian agreement that sought a way out of the tormented landscape which Israeli has created since its occupation of the West Bank and Gaza in 1967. Bespectacled, prematurely bald but as fit as a leopard, Arieli positively glows with excitement. It can be done. The Palestinians can have a state. It's just a matter of sorting out, well, 2 per cent of the land. Arieli sees me shaking my head. So off he goes:

"In 1993, there were only 107,000 settlers in the West Bank (excluding east Jerusalem). During the Oslo talks, between 2001 and 2009, Israel added another 100,000 settlers. Today, there are 300,000 settlers in the West Bank with another 200,000 settlers in east Jerusalem. This is not a natural growth. It's a very clear Israeli policy – to extend the settlement area. We have come to be identified with occupation rather than 'kibbutzim'. There is an intent to turn Israel into a pariah state. There are now 500,000 Israelis outside the 1967 borders. But" – and here Arieli hears me draw in my breath – "65 per cent of the settlers are on only 1.2 per cent of the area. In November 2007, (Mahmoud) Abbas said he was prepared for a 2 per cent swap of land. This is a territorial issue – it's about (UN Security Council Resolution) 242. This means the 1967 borders."

I understand what this means. Keep the huge Jewish colonies around Jerusalem – Ariel, Ma'ale Adumim and Gush Etzion – and near the Dead Sea, but squeeze settlers from other illegal sites (all settlements are internationally illegal, whatever Israel says) into the 0.8 per cent difference between the 1.2 per cent of the land on which 65 per cent of the settlers live and the 2.0 per cent allowed by Abbas. This is optimism of a bleak kind. The Netanyahu government and its Lieberman clique are hell-bent on the continued Jewish settlement of east Jerusalem and – after a few months – the colonisation of the West Bank. Area C is almost all lost to the Palestinians. Besides UN resolution 242, upon which Arieli depends, deliberately calls for Israeli withdrawal from lands occupied in the 1967 war – not "the" lands. That missing definite article avoids full withdrawal (even though it appears in the French version of the resolution).

But Arieli doesn't give up. "There is a current reality and there are facts on the ground. Every Palestinian knows there is no possibility of any Israeli prime minister having the political ability to evacuate so huge a number of Israelis. The only solution is a swap. The '67 border will have to be the basis of the swap – we would have to keep 75 per cent of the settlers on two per cent of their land." The current Israeli position appears to be 81 per cent of the settlers on 6.5 per cent of the land and my head is becoming dizzy. "Facts on the ground" are dodgy things.

And Jerusalem? Arieli produces an even more beflecked map. He would have it divided up on demographic lines. The Old City, a mere 2.5sq km containing more than 100 holy sites of all religions, could also be ruled internationally, governed under the old UN partition plan with an international committee composed of Israel, the US, Palestine, Egypt, Jordan – and maybe Morocco. "Sovereignty belongs to God, so we have to deal with this challenge."

I like Arieli, but I am worried about this plan. If East Jerusalem is to be portioned out, its very streets divided, it will be a hate-filled place like the disgrace that Hebron has become. "Hebron will have to be evacuated," Arieli says angrily. He agrees the place is an outrage. But would the Palestinians settle for a passage to what would have to be their capital that would run through Abu Dis? Arieli puts his thumb on Abu Dis. "It's not that small," he says. But it looks bloody small to me, a rat run for Arabs who want to visit their capital – and which can be effectively closed whenever Israel chooses.

I dare not ask about the Gaza Strip. Yossi Alpher has already been reminding readers of the Jerusalem Post that under the Oslo Accords, Israel promised to treat the West Bank and Gaza as a "single territorial unit' but never promised to link the two across 40km of Israel's sovereign territory. If the Palestinians won't accept a "swap", they'll have to think what they are going to give in return for a corridor joining Gaza and the West Bank. The fact that this corridor would divide up Israel just as it would join up Palestinian land is ignored. And what of Israeli Arab villages – are they going to be brought into the swapping game? But Arieli is resilient. Even the Wall – or the "barrier" as he keeps on referring to it – can be dealt with, section by section, "because in each section of the barrier, we can find a balance between Israeli security and the daily lives of the people who live there".

I have my doubts. Long may the Arielis of this world survive. But I fear that Palestine has gone.