What would you do if you were running the show in Israel? You’re responsible for a group of people that none of your neighbors want, even if they are the same race, ethnicity and religion, and those people have an ongoing campaign to push you out, which has been unsuccessful for as long as it has been going on. Oh yeah, their population is now many multiples higher than when all this started.
The literal answer is that I would resign and move to another country. Given that I've moved to another country a few times already, I'm fairly sure I would do that in the situation you describe.
Answering more to the spirit of the question: I believe that the situation between Israel and Palestinians is broken and can't be fixed until something unexpected happens. Neither side has an acceptable way forward.
As a rule of thumb, people who talk about right and wrong don't want peace. Those concepts are far more useful for justifying wars than ending them. Peace is achieved by compromises that make both parties lose interest in the war. There was a genuine desire for peace in the 90s, but it failed, because nobody could find an acceptable compromise. The leaders of both parties realized that the sacrifices required to make the compromise acceptable to the other side were worse than status quo.
What would I do? Abandon the racist and outdated ethnostate ideal, which is dying all over the world anyway, and enfranchise "those people". Instead of "two people, two states", choose "one land, one humanity". This is the only way we don't all end up nuking each other.
No; a chance to be full citizens in the same state, removing discrimination of "Arabs" or "Jewish", refounding the country on the basis of a modern state: separation of church and state, freedom of religion, equality for everyone before the law. Open a process to discuss reconciliation and reparations for expropriation of land (which Israel can easily afford). Give Palestinians the chance to regain their dignity and hope, in exchange for long-term peace and security.
Or do something else, I don't care; at this point one has to try anything but this slow-motion ethnic cleansing and "two states" bantustans.
There are Arabs who are full citizens of Israel, who have elected representatives in the Israeli parliament. There are also Arab judges in the Israeli supreme court. Oh, and the population of the muslim Arab citizens of Israel is much greater now than when Israel was formed. So, no ethnic cleansing there.
The Arab population in the Palestinian areas has also multiplied. So, no ethnic cleansing there either.
Israel is good at many things but it seems to be really bad at ethnic cleansing.
But they don't live in the occupied territories, duh. They are also second-class citizens de-facto, with a constant need to go through the courts to do everything they are technically entitled to but denied in practice. They are a fifth of the population but don't express anything near a fifth of the ruling classes - to pick the example you chose, 1 out of 15 supreme court judges is Arab.
It's very much like the condition of black people in the "separated but equal" era in the US, when theoretical legal equality was simply denied in the field.
> the population of the muslim Arab citizens of Israel is much greater now than when Israel was formed.
And this is the source of much public anguish in Israeli public discourse.
> The Arab population in the Palestinian areas has also multiplied.
But their land keeps shrinking. The land claimed by settlements is cleansed indeed.
Withdraw all the Israeli population within the 1967 borders. Build a few hundred metres wide separation zone between the two and ask the UN to guard it. Go to the UN and ask for the creation of a State of Palestine. Meet with ANP and Hamas representatives and tell them that you want peace, that their side of the land is theirs, and that you're going to help. Seek to arrange some land swap to create a viable territorial continuity between the West Bank and Gaza.
