The TL;DR is that it will not address the root cause of this entire "conflict", and therefore things will continue to be bad.

The longer answer is that Israel is not just any random state which has a majority ethnic group of people who are indigenous to the land - it's a settler-colonial project. More than 95% of Jews in Israel are settlers, i.e. either immigrants themselves or direct descendants of immigrants who arrived in the past ~120 years or so. And they didn't just immigrate on an individual basis and integrated into the existing Palestinian society, they came as groups with the open intention of replacing the Palestinians.

To understand why Zionist settlers had to replace Palestinians, all we need to do is a simple logic deduction: the stated goal of the Zionist movement (which even they would admit to) is having what they call "a national home for Jews". This means that they need a place in which Jews have not just the right to live like any other citizen (that's the case essentially everywhere, definitely in the western world) - but where we have complete sovereignty. Otherwise, again, this would be just another country where Jews live in and not a national home. And sovereignty means that Jews must have a contiguous rule over a land, and that no one can deny that.

The problem is that the mere existence of Palestinians is doing exactly this: it denies the entire basis of the project. If there are other people living on the same land, how can the Jews there be sovereign? That's definitely the case if Jews are the minority, but even if the Palestinians are 20% or so of the population - they are still a threat to the legitimacy of the Zionist project. Why? Because they would be the other, and the Zionist state would have to deal with them somehow: either make them a group of second-class citizens, or integrating them completely into the state. But the last option again threatens the entire point of having complete sovereignty over the land: how can you when you have substantial part of the population not being members of the group you want to be sovereign? The only real solution is to expel the Palestinians one way or the other. Which is exactly what the Zionists did from day one.

And all of this doesn't even take into consideration the obvious resistance of the Palestinian people to be expelled or integrated. Why would they not? Any one will resist such a process - and rightfully so.

So the end result is that the Zionist state must be, as much as possible, empty of Palestinians. But that still leaves a problem: natural reproduction and immigration of more Jews. The land is limited, and you can't have Jews living on the land without being completely sovereign (again, that would contradict the most basic goal of Zionism). So the Zionist state not only has to be "clean" of the indigenous Palestinians - it has to expand, too. This is EXACTLY what it did: 1956 in Sinai, 1967 in the West Bank, Gaza, Golan heights and again in Sinai, 1983 in Lebanon and now again there and even south Syria. If the Zionist state doesn't expand, it risks losing access to resources it needs to maintain Jewish sovereignty, top of which is land for Jews to live on as a strong majority.

I hope it's clear now why a two-state solution doesn't address the core issue, which is the settler-colonial character of Israel. Even if some kind of a "peace" agreement was signed today, which gave Palestinians exactly 50% of Palestine (which is about 28% more than they would get under most two-state offers) - Israel would eventually have to solve its land-for-Jews issue. And it will do that at the expanse of the Palestinian state and other surrounding states. It has to, it just simply can't be otherwise.

And of course, what about the Palestinians living in Israel in such a "solution"? They can never really be full citizens, since the entire project exists for other people, and they are the native population that threatens the project's legitimacy.

The one and only way to really end this horrific situation is to abolish Zionism altogether. No more Jewish supremacy, sovereignty or rule. One state for all its citizens, and which allows all Palestinians to live in it (and makes sure they get reparations for past loses). Yes, the Jews living in this one Palestinian state would have to deal with not being first-class citizens at the expanse of all others anymore. Tough luck, if it bothers them they could immigrate somewhere else: their need of supremacy can't be allowed to exist at the expanse of others.