Many scholars and Israeli politicians see Israel's future as a Jewish and democratic state compromised by three related threats: the first is the potential absorption of millions of Arabs as Israeli citizens if Israel annexes the West Bank and Gaza as part of a permanent move to eliminate the PLO, Hamas or both, the second is the potential threat to Israel from any right of return granted to Arabs living in the West Bank and Gaza as part of a peace agreement with the PLO, Hamas or both, and the third, much more in the long term, is the potential for Israel's 20% Arab minority increasing to 40% or 50% of Israel's population.
The demographic concern has been an issue since before Israel's existence. When Jews began immigrating to Ottoman Palestine in the 1880s with the dream of creating a Jewish state, it was abundantly clear that Jews represented a significant minority of Ottoman Palestine's population. Even on the eve of the 1948 War, Israel had only 600,000 Jews, as compared to millions of Arabs in surrounding Jordan, Syrian, Lebanon and the hypothetical Arab state that compromised 45% of the British Mandate west of the Jordan river. After defeating the Arabs in 1948, Israel benefited from the Arab states' decision to expel their own Jews, and Israel's population more than doubled within a few years of the 1948 War. Israel was again aided by smaller scale airlifts of Jews from nations as far afield as Ethiopia and Yemen, the largest of which was the massive airlift of 125,000 Jews out of Iraq in the early 1950s. But the big break came in the late 1980s and early 1990s, when millions of previously trapped Soviet Jews suddenly became free to leave the crumbling Soviet Union. When the USSR formally collapsed in 1991, the United State ceased to grant automatic refugee status to fleeing Soviet Jews, who now saw Israel as their escape destination from an unknown future in Russia, Ukraine or other newly independent states. Israel absorbed more than one million Soviet Jews in the early 1990s, which not only radically changed many aspects of Israeli culture, but also strengthened Israel's Jewish demographic.
At this point, the only other country with more than 500,000 Jews is the United States. Barring some largely unforeseen turn against America's Jewish population, it is not likely that a large scale Jewish emigration from the United States will occur. As such, Israel has likely seen the end of its Jewish population being augmented by large scale immigration from the Diaspora. The question that arises is, given the current demographic situation, how can Israel retain its character as a Jewish and democratic state.
The reason for this concern is that both an Arab majority would not be interested in maintaining either a Jewish or democratic state. More than 80 years of history have shown that Arabs have no tolerance for Jewish sovereignty for even a single inch of "Islamic territory" and that Jews should certainly not exercise political control over Muslims and especially not over an Islamic holy place like Jerusalem. An unfortunate reality is that many of Israel's Arab citizens are opposed to Israel's continued existence as a Jewish state.
More interesting is that most of the strongest political movements in much of the Arab world and especially in Palestine are decidedly anti-democractic. The PLO essentially forced itself on the Palestinian people, and Mahmoud Abbas has remained in power years after his elected presidential term expired. Hamas was brought to power in Gaza through elections in 2005, but it promptly evicted all Fatah/PLO representatives (even those who were elected) and violently took control of Gaza. There have been no significant elections in Gaza or the West Bank because each party has violently suppressed its opponents and well as other dissenting voices. It would be foolish to believe that the Palestinian governing forces of Hamas and Fatah could forge a democratic government even if they could somehow put aside over twenty years of violent rivalry.
Given these realizations, the question arises of what to do about the inevitable demographic problem that will arise. Certainly, other nations have already considered this possibility. Jordan, for example, has refused to grant citizenship to many Palestinians because it does not want to change the demographic situation to Israel's favor by permanently resettling Palestinians. This also contributed to Jordan's decision to withdraw its previous territorial claims on the West Bank 1988 even though it had demanded the return of the West Bank as late as 1974. Thus, the West Bank went from disputed between Jordan and Israel an area under Israeli military control. Israel retained military control of the West Bank without formally annexing the territory, thus establishing a situation similar to what which exists in Morocco and Western Sahara, though Palestinians in the West Bank arguably have greater rights to self determination than do Sahrawis, and Gaza's status is roughly equivalent to the status of the Polisario-controlled segments of Western Sahara. Nonetheless, it is clear that Arabs living under Israeli control would remove Jewish sovereignty if given the opportunity.
Even though the crisis point may be years or even decades away, the Israeli government has to have a plan in place to address the situation before it becomes critical. Whether Israel annexes the West Bank and Gaza or not, it will have to face the prospect of a growing and hostile Arab minority. Some, like JDL founder Meir Kahane, advocated a policy of first offering Arabs in Israel compensation to leave the state and then evicting them if they refused to depart of their own accord. Kahane, however, did not believe that Israel could not survive as a democracy and a Jewish state because the demographic problem. Kahane therefore saw no issue with evicting Arabs from Israel because he was less than concerned about the perception that such actions would be "undemocratic" or otherwise problematic. Another idea that has interested me was proposed by tourist minister Rabbi Benny Elon, who advocated dismantling the PLO and making the Hashemite Kingdom of Jordan the sole representative of the Palestinians. Israel would then annex the West Bank and Gaza, while all Palestinians in those territories would become Jordanian, not Israeli citizens.
While this plan, in my view, has some problems, I believe that the core of solving the demographic problem is to look at some combination of these ideas. The central tenet of any solution requires that the Palestinians assume some national identity that is not Israeli but that also extinguishes their attempts at return. However, it is less than likely that the Jordanian government would be thrilled with an influx of Palestinian refugees considering Palestinian antipathy toward the Hashemite monarchy. Yet, the solution must involve a reversal of Jordan's 1988 about face on its role in governance of the Palestinians. The problem from both a demographic and political standpoint is that Jordan and other Arab states have entrenched themselves in the idea that the only way to realize the goal of Palestinian nationalism is to create an Arab state on top of Israel. The more likely way to accomplish a lasting peace is to return to the original two state solution: Jordan for the Arabs, Israel for the Jews.
The real solution to the demographic problem is a lot of Elon's idea and a little of Kahane's. Perhaps it makes sense for Israel to pay Jordan to "encourage" Palestinians from the West Bank and Gaza to relocate east of the Jordan river. Jordan would realize King Abdullah I's vision of "Jordan is Palestine," despite the current King's unwillingness to fill that role. By making the Arabs of the West Bank and Gaza Jordanian citizens, they would be foreclosed from claiming to be Israeli citizens, resolving some aspect of the demographic problem. By annexing Gaza and the West Bank, Israel could clear out terrorist cells and key attack bases, reducing the danger to Israeli citizens and to Arabs caught in the crossfire. Some Arabs in the West Bank in Gaza would be resettled in Jordan proper, but even if some stayed in those territories, they would be Jordanian citizens who could legally receive limited rights from Israel and who would no longer be able to claim a right of return.
This solution is obviously not perfect, but it would have several advantages. First, it would place responsibility for the Palestinians in the hands of another nation instead of having a variety of sub-national political factions bickering. Second, it would resolve all issues relating to the right of return and would not require the creation of a third state in the former British Mandate. Third, it would allow Israel to reestablish control over the West Bank and Gaza without depriving the Palestinians of their nationalist vision. Fifth, it would be dismantle Hamas, Islamic Jihad and other Palestinian terror cells that have grown up in the lawlessness and anarchy of the Palestinian Nationalist Movement. Lastly, it would be a major step in solving Israel's demographic problem because all Arabs living in the West Bank and Gaza would be citizens of another nation and could not claim citizenship or voting rights in Israel.
Obviously, the X factor in all of this would be the Jordanians. Given current political volatility, it is unlikely that Jordan would like to take on such a hot political issue. Yet, Jordan is the best candidate both because it has political relations with Israel and because of the fact that Jordan was the national representative of the Arabs of the West Bank from 1948 until 1967 at least, and claimed political sovereignty until 1988. While King Abdullah II denies it now, the history of the region puts the onus squarely on the Jordanians to assume their appropriate role as the representatives of the Arabs of the former British Mandate of Palestine. In the long run, the only other way to maintain Israel as a Jewish state would be Kahane's expulsion plan, which Israeli politicians would most likely be unwilling to undertake until the situation reached a true crisis point and would likely involve significant death and bloodshed.