Ittai, you seem to be a reasonable person. Looking at the Palestinian refugee problem, it is clear that most of them will be absorbed into their country of residence (Jordan), the new Palestine, or countries like the US that have offered to take them. At most, Israel would be asked to allow a token number to "return". This is a matter of negotiation, and not a point that should be used to hold up talks. Furthermore, once Palestine is established and proves to be viable and not corrupt, I believe that there will be a movement of Arabs selling their property to Israelis and moving to a place where they are not discriminated against.
Stabbing reported in Kiryat Gat in southern Israel (Haaretz)
from the article: Top 10 worst errors Israel is about to make