I believe many in the Israel govrnment share the opinion, and that is why they do not definitively close it down ... but that is just my opinion.
Ultimately, I believe it is going to come to either that (meaning they simply annex it and end up fighting a war to defeat their enemies once again) or it is going to come to some gross compromise of Israel's security with people who have vowed to destroy them. That could lead to a much worse outcome IMHO.
There is an outside chance that over a relatively long period of time, that true moderates gain control in the West Bank and Gaza Strip and through sustained preservation of peace and destruction of the terror network that currently exists amongt them, the Palestinians actually become peaceful and the Israelis work out an agreement with them for a small "Palestinian State".
With all that has happened, I believe that is the most remote possibility ... again, IMHO.