The borders established under the terms of the 1948 armistice were not effective because they could not adequately solve the issue of the West Bank. If those borders were adopted, hundreds of thousands of Israelis living in the West Bank would be forced to live in a Palestinian state or forcibly removed and relocated to Israel.
This would be unacceptable. Many of the settlements in the West Bank are already fully established cities. Ariel, for example, has a thriving economy and a university. Relocating these cities would be impossible. 
The only other option would be to make these settlements part of the Israeli state in a mutually agreed swap. A Palestinian government would be unlikely to agree to this as it would deny them a contiguous territory, forcing citizens to pass border checkpoints and enter Israeli territory when passing between Palestinian cities.
Jerusalem also represents a major sticking point for a two-state solution. Temple Mount, the site of the Western Wall and the al-Aqsa Mosque, is a holy site to Muslims and Jews. Dividing it up and excluding Jews or Arabs from certain holy sites would be unacceptable to both sides.
The only way to maintain shared access to Jerusalem and its holy sites would be if both Jews and Arabs lived under a single state. This would allow both religious denominations to visit the holy sites unimpeded and obstructed by border crossings.