Blizzard's solution to the interaction between Divine Shield and Avenging Wrath is very clunky. I'm going to present a solution that I believe is far more elegant and simple.
First, as always, let's take a step back. Exactly what are the problems here. I think there are two problems here.
Problem 1: Chaining Immunities
Paladins have three immunity spells (going to list the upcoming versions):
1. Divine Protection - 50% less damage taken for 12 sec, 100% damage dealt
2. Divine Shield - 100% less damage taken for 12 sec, 50% damage dealt
3. Hand of Protection - 100% less physical damage taken, 0% physical damage dealt and melee attacks
Basically, casting these abilities back-to-back is overpowered, especially the case where multiple HoPs are tossed on a mage or warlock.
Forbearance is a good solution for this, and should be kept. Personally, I think a 1 min Forebearance is more than long enough, as the real concern is an immunity immediately coming after another immunity.
Problem 2: Burst Damage Dealt While Immune
Generally, a paladin should not be able to completely kill someone while immune. Blizzard has made a good start by making the immunities have a flat reduction. However, Avenging Wrath increases the paladin's burst damage, hence the effort to make Avenging Wrath mutually exclusive with the Immunities.
However, AW does not necessarily have to be absolutely exclusive. The combination just has to be weak enough such that the paladin cannot deal enough damage to burst someone down.
A better solution would be to increase the damage penalty of Divine Protection and Divine Shield slightly. (Hand of Protection is fine, as you can't make physical attacks.) Divine Protection should reduce the damage the paladin deals by 20% and Divine Shield by 60%. 80% of total damage is still enough for Prot to maintain a decent threat output, and is a small price to pay for the damage reduction. And really, for Divine Shield, the paladin doing 40% or 50% damage is not a big difference for a primarily defensive ability.
But if you add AW into the picture, a paladin with Divine Protection does 0.8 * 1.2 = 96% damage. With Divine Shield, she does 0.4 * 1.2 = 48% damage. Note that both of these numbers are less than the proposed official versions. If the proposed version is correctly balanced, the new version cannot be overpowered.
This solution is clean and simple. Avenging Wrath is completely separate from the Immunities. You can use it whenever you want, without having to worry about Forbearance. Each problem has it's own separate solution, and there are no clunky and complex cooldowns to worry about.
Edit: Oops, Divine Shield, not Divine Storm.