These Palestinians are residents of Israel.
No. Only the ones within 1967 borders are residents of Israel.
Maybe when Israel annexes everything west of the separation fence, the Palestinians of East Jerusalem will become citizens of Israel.
It is a problem of Israel's own making.
Not really. It isn't their fault the Palestinians invaded Israel's ancient homeland and are trying to steal it.
1) Deny a large proportion of their residents have no rights because they were born into the wrong ethnic group. Of course this would mean that they can know longer pretend to be a modern democracy.
These people (Palestinians east of the separation fence, or in Gaza) are not residents or citizens of Israel.
They don't have the right to participate in Israel for the simple fact that they aren't Israelis.
3) Decide to embrace modern democracy and give equal rights to all of its residents. Of course this would mean giving up the dream of being a majority Jewish state.
Not really. You are pretending that people are residents of Israel, when they are not.
The separation fence will become Israel's border. Palestinians outside that border will never have any claim on being a citizen of Israel.
4) Give up land for peace in a fair two state solution. Of course this requires offering the Palestinians enough to make them feel it is a good deal.
That's been tried. The only thing the Palestinians did was murder a large number of Israeli civilians.
There is plenty of propaganda that says that Palestinian are incapable of civility or that Palestinians never lived in the contest land. Of course this mythology is easily disproved.
Well, the Palestinians certainly lived there after
they illegally invaded. But they didn't live there before
they illegally invaded.
"Incapable of civility" seems like a fair enough charge. Every time anyone tries to make peace with them, the Palestinian response is to try to murder children.
I hope that we will see options 3 or 4.
#3 will never happen.
#4 would happen if the Palestinians were willing to make peace. But since the Palestinians aren't willing to make peace, there is no point in worrying about it.
people who are controlled by a government that doesn't represent them and gives them no rights as citizens are not things we want to see in a modern industrialized country.
The only control Israel will exercise on the Palestinians east of the separation fence, or in Gaza, will be what is necessary to prevent them from murdering Israeli civilians.
But these are the only four possible outcomes, and Israel must choose which path it will take.
The Palestinians have a choice too. They have the power to derail #4, by massacring innocent Israelis every time Israel tries to make peace.
Israel's first choice would be #4. But since the Palestinians will not make peace, Israel is going to implement #1.
Your characterization of #1 is wrong though (those Palestinians are not residents of Israel).
Choice #1 doesn't mean there can't be a Palestinian state, by the way. If the Palestinians ever wanted to make peace in the future, they could still set up a state on land east of the separation fence.