I don't have any better ideas, but ilpoint out that much of the blame for this situation lies in the refusal of states neighbouring Israel to take in Palestinian refugees. This was done to make the situation impossible for Israel. Internal politics regarding a 'Jewish State' made it impossible for Israel to absorb these Muslim people, ad the Palestinins would have wanted at least some of their land back, making it difficult to accept more Jewish settlers.

The aim for the Arab countries was to prevent the successful development of a modern, liberal, democratic and industrial state in thier midst which would have had their own people wonderng why they were still stuck in the Middle Ages!