"Well they do now but only by denying Palestinians the right to live in the country they also claim."
Who "claims" this? Olmert? Should socialists allow bourgeois politicians to speak for entire national groups?
"We should be for complete political and legal equality including the right to autonomy but not the right of one section of the population to brutally oppress another."
Exactly. Which is why a two-states programme - based entirely on the above principle - is the only currently feasible one for class struggle in Israel/Palestine.
"It is not fantasy to call for the overthrow of the Israeli ruling class, the dismantling of the bourgeois state: it is along way from happening but so are many things socialists advocate. it is possible to imagine a different world and take concrete steps in the here and now towards it."
None of PR's agitation around the colonial or imperialist projects of other nations (America, Britain, wherever) includes demands to "dismantle" or "overthrow" their states (even though that's presumably what we'd all advocate in a general programmatic sense). A programme for Israel/Palestine which makes an ultimatum out of "the overthrow of the Israeli ruling-class" and "the dismantling of the bourgeois state" will not gain any hearing amongst any number of Israeli workers. At best, it says to them "until you're ready to make socialism we do not believe you are entitled to any national rights." At worst, it simply says "you have no rights at all."