Because it would mean the end of a Jewish state. Combine Israel and Palestine and you get roughly 50% Jews, 50% Arabs. (5.3M Arabs in Palestine, 7.1M Jews in Israel and 2M Arabs in Israel).
What else is the long term trajectory here? Israel can't keep occupying Palestinians indefinitely (and I'm using the term "occupy" in the Israeli meaning, not in the Palestinian meaning, fwiw). Two states as we've seen is not going to work. Anyways, I know this is a hard time to talk about this.
Two states are much better than one in my opinion, and the PA-led pseudo-state is much better than Hamas-controlled Gaza. Israel and Palestine need a manageable divorce, not a forced and unhappy marriage.
Regardless, the PA does not advocate for one state, Hamas does not advocate for one state, and the vast majority of Israelis do not want one state, so I think this is kind of a moot point.
It it leads to a peaceful and stable state that would be a good thing.
Is there a need for a Jewish state? Lots of ethnic groups do not have their own state. Mine does not - a much smaller number of us, and we are disappearing through mixing.
So maybe there’s no strict need for a Jewish state, but I can see how going back to a collective of (often oppressed) minorities is not appealing.
But you don’t even need to look into history. Today Malaysia and Indonesia both have non-muslim minorities. Bosnia and Herzegovina has slight muslim majarity and is doing relatively fine.
When Turks left about 100 years ago Muslims were a minority but thanks to much higher birth rate they now want to set the rules in Bosnia. Serbs know that, that's why they resisted, and still resist, a unified Bosnia.
Ottoman Empire tolerated Christians, true, but to achieve anything in life you had to convert to Islam. Otherwise you could just remain a haraç-paying Christian peasant without any chance of education or growth. Haraç was a tax for being a non-Muslim.
It was super hard to be a thriving Christian under Turks. In fact the Turkish policy was to demographically and economically slowly bleed Christians and for those with ambition to convert to Islam.
I think if Israel stated that is the goal, to make Palestinians equal citizens in the larger single country, and had a plan as to how that goal could be accomplished, that would be more constructive than the current stall until things blow up plan. I'd like to think many/some Palestinians would buy in and the rest would get no choice anyways.
This plan naturally involves dismantling the PA and taking complete civilian control over the entire territory including formally annexing it to Israel. It should also include some clear continuous benefits to Palestinians from where they stand today (which is pretty bad, so shouldn't be a problem).
A variation of this plan could be some sort of federation, where the country is "Israel" and there are two states under that country. Not unlike Canada or the US. That could also address the population ratios vs. democracy (just like democracy in the US or Canada isn't a proportional system). So we can have a parliament some fixed representation for different parts. I think Lebanon also has something along those lines. I'm sure over time we'll see coalitions that cross those "state" boundaries.
As long as there's a constitution, and there are the right mechanisms, checks and balances, to maintain that, and enough time to get beyond the current tribal let's kill everyone mindsets, it can work.