I think enlightened people can see that gender is a complex issue and that it makes sense to just let people be, welcome them and broaden the social and cultural web to include all the variations in gender that actually exist in and around the main binary construct.
I agree with the part about complexity. However, your fully libertarian solution assumes that existing social mores are not worth acknowledging. I have to disagree.
Solutioning needs to take into account the reasonable concerns of all parties. You cannot order a person to abandon their deeply held views, especially of those views are religiously based. They won’t do it.