Return them to their land?
One confederation ruled by secular laws [at a national level] - like Turkey, but, within each state, ruled by Muslim and Jewish laws respectively - i.e., Palestine is governed by Muslim laws, Israel by Jewish laws - but nevertheless certain laws are shared by both, including democracy, and freedom.
With a bit of tinkering, fine. I think the government should be both democratic and secular though. No religious authority, except on a local level, with freedoms including the right to live, allowed.
Build the Temple next to Al-Aqsaa - but slightly further away, and have separate entrances so that the Muslims and Jews will not interact and quarrel.