While it sounds good, the above is unrealistic and impractical. If Israel were to annex the West Bank and Gaza and make them part of Israel, the Muslims would outnumber the Jews. They would then vote in a Muslim government and that would be the end of the Jewish state. It will never happen. Israel does not want to annex the West Bank and Gaza. They just want the Palestinian Arabs to stop killing Jews and let everyone live in peace each with their own state. That will never happen either because the Arabs won't let Israel live in peace, so there will be war between the two peoples for a long time.
Substitute India for Israel, Pakistan and Bangladesh for the 2 parts of the Islamic nation of Palestine, and there you have it - a historical renactment in the creation of Islamic States that fail and resort to Islamic terrorism.