A nuke is definitely out, but there are other ways. Use a vaccine on your own people and any palestinians that want to live in peace and have a record of doing so. Then release a biological agent on those that don't.
Sometimes survival calls for ugly responses.
If Israel tried that, the disease would spread - fast - into neighboring Arab nations. It would put those neighboring Arab nations - which have chemical weapons and (maybe) biological ones - in the position of having nothing to lose.
Think a few moves ahead. (What would happen if this miracle disease spread to anthrax-armed Iraq?)