1. I think the unilateral declaration of Israeli sovereignty over the territories would be a bad idea. It would close off options and bring Israel unnecessary problems abroad. The military destruction of the PLO and that ilk would accomplish the goal without it. Suicide bombers are made by terrorist indoctrination, they do not spring up spontaneously out of the ground.
2. I don't think that direct Israeli rule over the Palestinians in the territories would be a good idea. That might be the one thing that could extend the life of Palestinian terrorism beyond the military action proposed. I think that they need to put the idea of a Palestinian state on permanent hold, encourage the emergence of pro-democracy Palestinian leaders (there are probably still some Arafat hasn't killed) and get international help for a non-Israeli and non-US order-keeping force - Turks come to mind.
For the immediate present, the establishment of about a 25km cordon sanitaire would do it, at least until Israel's enemies place longer ranged weapons in the hands of their PLO and Hezbolla surrogates- the *10,000 missiles* includes such shorter-range equipment as Antitank RPGs and Sagger missiles, and free-volly Katyusha 122mm rockets, certainly effective from such ideal locations as the Golan Heights, but less so across more open distances.
That would likely only serve for a few years, however, and perhaps only for a few months. But it might be better than the wholesale slaughter that will result if the Palis have to be cleared away in house-to-house actions by the Israeli military.
In any event, the idea of a buffer region is an interesting one, and perhaps those poor souls who have mistakenly crossed the US Border from the south might also be relocated there, to live peacefully under those Turkish Janissaries you propose. It could be called *New Mexico*...-no, wait: that name's already in use....
-archy-/-
You propose a ghetto, perhaps sarcastically; I propose denazification and democratization. I don't think that's an inhumane vision. The destruction of the Nazi regime and the Allied occupation was certainly the best thing that happened to the Germans in the twentieth century.