Based on Israelis and Palestinians living as peaceful neighbours in two separate states, it has been the bedrock of hopes for a settlement between the two sides.
But as the Israeli-Palestinian conflict continues to claim victims, more and more Palestinians and some Israelis are calling it into question.
They argue a viable Palestinian state is an unrealisable dream and the only way forward is for Jews and Palestinians to live side by side on an equal footing.
The main obstacle to their plans, however, is unbending Israeli opposition to a unified state which would probably signal the end of the Zionist project.
According to Khalid Amayreh, Aljazeera.net's correspondent in the West Bank, most Palestinians have all but given up on the two-state solution.
"The feeling in the Occupied Territories is that the Israelis have effectively killed off the two-state solution by building settlements on Palestinian land," he said.
"There is just no time left for a Palestinian state. How can a state be a viable proposition when it has no control over its borders, when there is a military occupation, and when towns are cut off from each other by a system of roads and checkpoints?
And Ghada Karmi, a Palestinian writer and academic, says the two state solution is doomed because of the nature of Zionism itself.
She told Aljazeera.net that the ideology of the Israeli state is inherently discriminatory against non-Jews and cannot live peacefully with other worldviews.
"The alternative for Palestinians seems to be a unified state, with equal rights for everyone," she said. "And that itself would of course put an end to the main obstacle to peace - Zionism itself."
This change in Palestinian opinion represents a stunning rejection of the peace process, which has advocated a two-state solution as the only realistic way the Palestinians can aspire to a homeland.
"I think the conflict will drag on until eventually after years of bloodshed people will come to their senses and realise that the only solution is to share the land"
Palestinian writer and academic
In 1993, Palestinian leader Yasir Arafat recognised Israel's right to exist in return for Israel's agreement to embark on negotiations that would eventually lead to Palestinian statehood.
But hopes of peace between two independent neighbours have since been thwarted by ongoing strife.
Amayreh says Palestinian officials privately admit the two-state solution is a dead duck, but nevertheless back it in public.
"I think they don't have the strategic vision, the national responsibility or the intellectual honesty to pursue the only sensible course - a one-state solution," he said.
"Also, there are some officials who know they will be finished politically if the two-state solution fails. I think there are people who put international acclaim ahead of national interest."
Ghada Karmi, who is writing a book on the one state solution, says Palestinian leaders are following their pragmatic interests.
"I think they cling onto the two state solution because it has international approval and they want to pursue a course they think is realistic."
According to Amayreh, about 40% of Palestinians support the unified state plan, and the rest oppose it because they think Israel will never allow it to happen.
Palestinian leaders are firmly
behind the two state solution
But Karmi believes Palestinians are more divided on the question.
"I think diaspora Palestinians are largely behind the one state solution because it is the only way they are going to get to go back home - the West Bank and Gaza is simply not big enough to accommodate them.
"But those under occupation are still only one-third in favour of one state. The majority just don't want to live with the Israelis because of the terrible way they have been treated under occupation."
For a two-state solution to work, Israel must physically remove its military bases as well as hundreds of thousands of settlers from all the Occupied Territories including Jerusalem.
On the other hand, proponents of the unified state claim that to create one bi-national state Israel would simply have to get rid of the system of apartheid that has condemned both peoples to war.
Differences over Palestinian refugees, Jerusalem, the Palestinian minority in Israel, settlers in Palestine, Israeli security, borders and water could all be resolved, they say.
This is because one shared state would be based on citizenship and the constitutional protection of religious and national identity.
Either way, a one-state solution would mean the Palestinians would have to accept Jewish settlers as legitimate neighbours and Israelis would have to view Palestinians as fellow citizens.
"I think the one state solution is totally unrealistic because it would effectively mean the end of Israel when current demographic trends are taken into consideration"
Washington Institute for Near East Policy
However, sceptics say this is a pipe-dream.
The Palestinians are not ready for it and Israel, obsessed with demographics which favour the Palestinians, will never accept it.
David Makovsky, an Israel expert at the Washington Institute for Near East Policy, told Aljazeera.net the two-state solution was the "only game in town".
"I think the one-state solution is totally unrealistic because it would effectively mean the end of Israel when current demographic trends are taken into consideration," he said.
"The international community, and definitely the US and the EU, are committed to the two-state solution and I can't see that changing.
"I still hold out hope that the two-state solution can work but it probably won't as long as Yasir Arafat is the Palestinian leader. He could have had a state already if he had accepted previous deals offered to him."
Israel is determined to preserve
its Jewish majority
Makovsky added: "Both peoples have the right to live in their own states with dignity."
But despite the considerable odds, Ghada Karmi says a unified state is a long-term inevitability.
"The future is very grim, I'm afraid. The Israelis will continue to try to expel the Palestinains and take away their land; Jews will continue to leave Israel; and the Palestinians will stay on their land under terrible conditions.
"I think the conflict will drag on until eventually after years of bloodshed people will come to their senses and realise the only solution is to share the land."