Your vision is one whcih occurs in democracies. You forget that Israel is not a democracy but an ethnocracy. As inclusion of the Palestinians into tis expanded Israel ethnocracy, as Arabs in the majority they would be relegated to the status of aliens, since they are not Jews. That is the nature of an ethnocracy. Hope this clarifies the matter for you.
U.S. House Speaker Boehner brushes off call for his ouster (Reuters)
from the article: Abbas must unilaterally declare Palestinian state