Philosopher,
You are wrong.
The Palistinians were absolutely NOT citizens of Israel before Oslo. Until Oslo they weren�t citizens and there wasn�t even a recognized representative to negotiate with. They were just stateless people living in refugee camps.
Your also wrong if you think that Israel could absorb about 4 million Arab citizens (that�s about the amount of Palistinians living in the West Bank and Gaza) and still keep it�s Jewish character. All Jewish specific parts of the state would be voted out within a couple years.