It also depends on what "two state solution" actually means. Traditionally, Israel has made such solutions impossible. The "you go your way, we'll go ours" has been off the table because Israel doesn't want that, they want the entire land and the expulsion of Palestine entirely.

A two-state solution, where there's a kind of federation between them might actually work. The federation would have to abide by international committees and violations by either state would be subject to some kind of punishment (be it trade deals or even military action in severe cases).

The first problem, though, is the weapons supply and military training from the West. If that were cut off, it would take maybe a year of bloody gorilla fighting, but the playing field would be relatively equal at that point and then it'd be anybody's guess who'd win out. Getting the USA to slowly wean away support would mean negotiating partially on their terms.

In other words, Xi could just be giving the USA a peaceful "out" here, if they take it. The USA can save face and support a ramp down of the situation instead of escalation. I don't see that happening near-term, but lots can change in the next few years and this play by China might just be the thing that allows a better situation to happen here.