Having the benefit of hindsight I would have made some attempts to nationalize the Arabs in the West Bank+Gaza, Marshall Planning them and trying to prove that Jews aren't all bad, giving reparations to people who were forced from their land by the fighting in '48, and moving to secularize Israel. This would be a huge risk since the Arabs there generally had a high hatred for Israel, but after 19 years of imprisonment by their saviour brothers there could have been an opportunity for reconciliation should Israel show understanding and compassion.

Without hindsight I would probably have taken one look at the demographics and left them there and pretended they didn't exist like Israel did, leaving the same fscked up situation.