That's a sound plan if (1) which of the options in return or compensation is Israel's choice not the Palestinians'--though I don't think "illegally forced from their homes" is an easy thing to judge, (2) Every violent Palestinian faction agrees down to such a small size that they're essentially irrelevant: not just Hamas, but also Palestinian Islamic Jihad, etc., and (3) Israel is freed from the financial and logistical burden of ensuring that the Palestinian territories are not used to launch attacks on its citizens and someone else picks them up instead.

The reason why (1) is essential is that Israelis need assurance that there still will be an Israel that is Jewish in character and various factions including Hamas have made no secret of the fact that they're totally cool with using the right of return to effect demographic change to place Israel back under Islamic control; and (2) and (3) are necessary to give adequate assurance that they are not giving up their safety or committing to a massive ongoing expense, which is especially pertinent given that the more hands-off approach in Gaza has resulted in a far more deadly outcome to Israel.

Given that, sure.

The problem is that neither any Israeli government nor an adequate number of Palestinians find this solution acceptable. You'll have a minority of Israelis who won't agree regardless, but they can be kept under control if the majority are convinced that it's the right thing to do--for instance, the Israeli deportation of Jews from Gaza shows that this is eminently possible when there's political will to do it. The big piece that is missing is assurance, with teeth, that factions within the Palestinians will not use the additional freedom to find better ways to re-conquer Israel and put it back under Islamic control.