No, the “settlement” issue is a canard blown out of proportion by anti-Israel leftists.
There are no “unrealistic expectations” for Israel. There is a pervading antisemitic spirit, especially out of Europe, that does not want the Jews to have Israel as its own.
Even without the refugees, the Arabs are still between 40-50% of the population of geographical Israel/Palestine. This fact will not go away because it is inconvenient to the dreams of a Jewish homeland. Even in Israel proper they are 20% of the population. They need to be treated with the same dignity that the Jews demand for themselves.