This is how I wish to respond:
A progressive Zionist is very clear on what s/he means by a Jewish state; s/he knows that it's not about a state that is either theocratic or exclusively Jewish. It is about a country that is always open to Jews seeking refuge from persecution, discrimination or oppression (at a minimum) and also may have a certain affinity for preserving & cultivating Jewish cultural expression & heritage — whether in religious or secular form — (at a maximum), while not impinging upon the individual civil rights of its non-Jewish citizens.
I am NOT saying that peace hinges on the Palestinians accepting a Zionist understanding of Jewish identity. Still, it's too bad that there is this misunderstanding or reticence; it would take away a right-wing arguing point if the Palestinian national leadership could clearly state that they understand what is meant by the "Jewish people" (as a historic national entity, beyond a mere religious group) and that a Jewish state doesn't have to be theocratic or exclusively Jewish.
I don't need this understanding from them, but most Israelis apparently do (especially in the wake of the bloody second Intifada and the Hamas takeover in Gaza). It doesn't help the Palestinian cause if most Israelis see this as added evidence that Israel is not really accepted as a sovereign reality.
One last thing, my recent article in Jewish Currents magazine, "Two States Are Still Better Than One," is now online. My concluding paragraph is as follows:
If efforts to achieve a two-state solution are not renewed, Israelis and Palestinians will be condemned to a bitter struggle for generations to come. This would be true even if a non-violent, rights-based strategy were pursued on behalf of a one-state solution. Given the history of violence and intolerance in the region, plus the tragic undercurrent of Jewish history, Israeli Jews will not easily surrender the hard-won achievement of the world’s only sovereign Jewish state. This is a stance that no approach — whether economic boycott, international resolution, or any tragically ill-conceived return to violence — would alter.