Well, they had the humanitarian option of rehoming those Palestinian refugees who would have accepted it (not all would, granted). Instead they closed their borders, effectively and intentionally creating the current situation. This was back when Israel was first getting started, and the hope was that the West would take a humanitarian view, force the Israelis to hand some land back to the Palestinians and grant them full civil rights. This would ultimately have made Israel a Muslim majority state and left the Jews back where they started.

Nobody expected the Israelis to ignore political pressure from the West or the US to give so much uncritical support to Israel. But the US wanted Israel to be their voice in the Middle East just as they assumed the UK would always be their voice in Europe.