> The Jewish minority in that case would not accept living in a muslim arab state since they consider Israel to be the sole refuge for jews in the world, the only place in the world where they don't have to be a minority.

In the modern world, if you accept universal human rights, every minority in the world has to accept that it's a minority, and every majority in the world has to learn to accept the minority. In addition, everyone is a minority is some sense and somewhere - depends on your worldview.

What you're saying is a very condescending (and frankly antisemitic) claim - that Israelis (or Jews) are somehow "special" in being so stupid to never accept this. Of course they can accept it, just like everybody else in the world learns to accept there are other ethnicities and races. Americans, for example, learned to accept it. Likewise, all Jews outside Israel have accepted being a minority. It's not really a problem that racists make it out to be (at the end of the day, people individual differences and conflicts trump most group differences).

> When Israel was "a single biethnic country" this was the norm

That's why modern biethnic countries have laws and other systems that prevent that - see my comment above. A good example is Belgium. The point is, you can change the perception from 2-states to functioning 1-state without having to give up anything related to each ethnicity's cultural heritage. Has been done many times in history.