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Well written answer. This actually gives me a fantastic chance to argue the pro-Palestinian side for a change, which deserves some nuance of its own that it doesn't get nearly enough of.
I would argue that the realpolitik stance of Netanyahu is grossly outdated. Before the events of Oct 7th, Israel was getting closer and closer to an agreement with Saudi Arabia, indicative of a growing perception that the days of fossil fuel profits running an economy are slowly coming to their end, and the need to transition towards a service sector economy based around tourism, the free flow of business and cultural and technological export. All of these are severely hampered by violence in a way that resource extraction is far less subject to. Because of this shifting economic climate over not just the region, but the whole globe, the days of sudden, large-scale Arab attacks into Israeli territory were growing more and more unlikely. This ultimately makes the wish to secure a greater strategic depth unnecessary.
While that would not remove the chances of terrorism, we can look to the end of The Troubles in Ireland and see that negotiation and autonomy can create a viable path forward for ending local sectarian hostilities. While this would no doubt be a difficult path, requiring significant investment and no small amount of vulnerability from Israel in the short term, it has the potential to secure a lasting peace in a way that bombs simply cannot. If a negotiated peace and independence for the Palestinian people can be achieved, then, further ties with the rest of their Arab neighbors become significantly easier, giving Israel a much better opportunity to rise to a status of acceptance and prominence within the broader Middle East community. This would in turn allow them to exploit the Sunni/Shiite and secular/religious divides within the Islamic world to align themselves with the majority against Iran, and give them much greater security in the long run.
This diplomatic and economic path to security is perhaps barely still possible, if Israel can throw out Netanyahu and change their direction, reversing their pattern of settlement in the West Bank and economically compensating the Palestinians for land already lost. A back-breaking property tax could perhaps be levied on all Israeli citizens living within the West Bank settlements, with the proceeds going to outreach, health and education programs for their neighbors, both Arab and Israeli. This could slowly lead to a sort of economic demilitarized zone, and be the first step towards co-existence.
Well put.
I think the desire for a national identity (Zionism) is fundamentally at odds with peaceful coexistence with neighbouring ethnic groups. Israel is definitely at a major disadvantage here. Most other ethnic groups have a "homeland" out of sheer geo-historical inertia. Though I wouldn't call it a completely unique situation. We see the tensions arise from the protection (or lack thereof) of national identity all over the world to lesser degrees, especially as globalization creeps in.
And I can empathize with groups that feel marginalized because of it. Though I think letting it boil over into violence is definitely a step too far.
Besides, geography as a means of cultural protectionism may be an outdated idea. We can't underestimate the importance of soft power for spreading cultural influence, and being in a state of constant conflict does not further that goal.
In summary, I think Israel's actions are rational at a tactical level, but ultimately fail to address the big picture you lay out.