Those look like low-rise buildings. Build on vacant lots inside the town at higher floor area ratios and you not only have more housing, but you make transportation and service delivery more efficient. It may be densely populated already, but it isn't Hong Kong.
Ofir Akunis officially replaces Danny Danon as minister of science, technology, and space (Haaretz)
from the article: Expansion of impoverished Israeli Arab town angers Jewish neighbors