Israel only existed as an independent state for a few hundred years during the era of the kings, and then for a very brief time before the Roman conquest. Arabs have been living in Palestine since the 7th century.
Also, the land upon which the ancient state of Israel established itself took it from the Caananites, whom the Bible said the Israelites mercilessly slaughted.
2. "Occupied lands" is an invention of the Arabs. Reconquered is the accurate adjective.
Israel did not annex the occupied territories. Even the Israeli government does not consider them to be part of Israel.
3. "Peace" will be a chimera as long as "Palestine" is not so considered.
So what are you proposing to do with the people who beleive themselves to be the nation of Palestine? Perhaps the same fate as the Caananites?
They can do what the Germans who were in Sudetenland, Pomerania, and Prussia did: Be killed outright, robbed, raped, or try to get out Dodge beforehand. The West Bank and Gaza were, and still should be, and may yet be, conquered territory, with its inhabitants at the mercy or lack thereof, the conquerors.
The Arabs have tried to eliminate on three occassions. They failed. It's way past their turn for the fate they wished for the Israelies. Live with it.