Apple's not shipping a bigger phone yet because it's something they can hold back on until they need to do it. The iPhone 5, iPhone 5s, iPhone 5XL iPhone 6... one of these will eventually do it so as to sell you something new.
I still think people like big screens on smartphones and thumbs be damned plus nobody seems to like voice recognition or Dragon Dictate would be on every PC.
There's a reason iOS5 features a "splittable" keyboard that brings all keys within thumb reach of both edges of the screen.
You'd have basically two iPhone screens next to each other, portrait - that gives us 4.9" diagonal, maybe a smidge wider would still work, but nowhere close to 7".
That's the only way to guarantee a comfortable reach for all screen locations. A 7" tablet is still way too large if the goal is complete two-hand operability. That's not a design goal of a table though, in its normal use case.
In any case, I have no problems against the 7" tablet form factor, so I'm not sure what the issue is.