Permit them to stay in Israel as 'resident aliens'. Issue them a 'green card' that will be their identification card and allow them to obtain a driver's license so they can move about the country as their employment requires. Tax their income so they can contribute to the infrastructure that is required to make their lives safe and comfortable. If they are convicted of felonies, deport them instead of wasting Israel's money on incarcerating them. Do not grant automatic citizenship to their children who are born in Israel. But, do not deny the right to apply for Israeli citizenship to those refuseniks' children simply because their parents refused the loyalty oath. The children have the right to make up their own minds when they become adults. There, that ought to do for a start. I'm sure you can expand on this.
from the article: PM backtracks: Loyalty oath will also apply to new Jewish citizens