Legally the areas occupied of Mandate Palestine by the Arab armies were supposed to remain open for Jewish settlement. (In practice, the Egyptians and Syrians and Palestinian Arabs sought to murder Jews in Mandate areas, whereas the Jordanians' Arab Legion evicted them.)
The condition of Jewish settlement stated in the Mandate was that Jews respect Arabs civil and property rights. This the Jews have done: Jews settled in "state" lands or purchased lands from Arabs; attempts by Israeli extremists to seize privately held Arab land are voided by Israel's courts and the settlers evicted. (Per international law, this doesn't apply to military outposts.)
Arabs were also supposed to respect the civil and property rights of Jews throughout the former Ottoman areas. This Arabs have, collectively, not done. You don't need to trust me at all on this but look at the demographics: Israel remains 20%+ Arab whereas the number of Jews in surrounding Arab countries range from zero to a few dozen. As the Egyptians have figured out, the Jews have both a legal and moral claim to their modern-day dispossession; the Egyptians just don't want to deal with it: link
The proposal for a "two-state solution" (actually three, since Jordan was chopped off the Mandate earlier to be what Churchill described as a "police station" for the Iraq-Haifa pipeline) was approved in the General Assembly but rejected by the Arabs. This G.A. resolution (UNGA 181) has no legal status.
What is Israel up to now? Well, under UNSCR 446 the U.N. pretty much declared it was up to Israel to defend Jews' rights as a matter of "world peace" (in context, caving in to prevent terror attacks in Western countries). Israel need not declare sovereignty over ALL of Mandate Palestine. It can, however, prevent Arabs from encroaching on Jews' rights: state lands that should remain open to Jewish settlement, not Arab expansion, and the enforcement of Jews property deeds that were voided or ignored by Arabs.
Israel has very much wanted a Palestinian state for twenty years. Exact and complicated terms are in the Oslo Accords. As an "interim" measure some areas fell to Arab administration immediately. Others did not - and that in the meantime Israel did not surrender Jews' right to settle in such areas. On the other hand, Arafat and his successors have since made it clear that their goal is to replace Israel with Palestine not live in peace alongside it.
The civil rights of Arabs in the context of Mandate Palestine were those granted subjects by the Ottoman rulers. Civil and property rights became forfeit when a populace turned to civil revolt.
For reference, I recall the Ottomans two ways the Ottomans would respond to revolt: eviction of the populace and forfeiture of their property (even if that included mass deaths as happened to the Armenians) or decimation (going into a village and hanging at least one male or even one in ten, regardless of whether he was guilty of a crime or not.)
Nobody knew this better than Ben-Gurion, who trained as an Ottoman lawyer. I imagine that's why, when the Arab leaders of Ramle and Lydda told the Jews in 1948 that they were determined to remain in a state of revolt, he decided these populations were to be evicted (which didn't necessarily mean they were evicted from Israel, as some may have become IDP's and re-settled elsewhere.)
So the proper question doesn't have much to do with Israel but what rights should remain to Palestine's Arabs? Those reconciled to Israeli rule remain in Israel. But those who vowed to reject the Jewish presence in Palestine and their descendants, hostile or not? What obligation is Israel supposed to have to them?
I think it's worth noting that the entire idea that Jews are somehow responsible for Arab displacement was rooted in Jews' charity: the Jews bought land in Palestine from absentee Arab landowners and made efforts, as a courtesy, to find their Arab tenant farmers new situations elsewhere. That courtesy soon became construed as a "right" and from there the conviction that no Jew may displace an Arab - even if the Jew is the legal owner of the property - without Arabs' say-so.
Nowadays the "Palestinian" attitude that Jews should be evicted from areas even if they are the legal owners, and the more extreme Hezbollah stance that Jews should be murdered wherever they may be on Earth: link.
My theory is that the hardening happens because (as happened in the American South after 1830) once arguing in favor of the Jews (or abolition in the South) became forbidden by law, the only remaining way for challengers to contend for power against the existing elite was to take a more militant position. After a few stages of this the results in both cases were war, either against foreign opponents or domestic ones.
And all it took was for the right of free speech to be suppressed on one particular subject.