'why not exchange all palestinian towns and villages in israel proper for the settlements. the palestinians would get umm al fahm jet kfar qassem taibeh tira and wadi ara.' That is along the lines of Lieberman's plan. The obvious objection to it is a security one. Israel has a very narrow waist at Tel Aviv/Gush Dan. By giving away the Triangle and so on, it would make more of Israel even narrower and harder to defend. Can't see the IDF buying that one.
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Palestinians: One moderately wounded in Israeli strikes on southern Gaza Strip (Haaretz)
from the article: Haaretz exclusive: Olmert's plan for peace with the Palestinians