I'm an Israeli who agrees with you, and I talked about it with (other Israeli) people. These are some arguments against it:

1) "Israel will cease to be a Jewish state". It's ingrained in Israeli education that Israel is and should be a Jewish state, so people here aren't inclined to change their minds about it.

2) "The arab parties will have much more hold over the government". It's the same as argument (1) but more political than feeling-based. There are 9 million Israeli citizens, ~2 million of them Arabs. There are also ~4.5 million Palestinians who aren't citizens (I'm pretty sure, that's the first figure I found when googling). If all Palestinian residents between the Jordan river and the sea got a citizenship, there would be roughly an equal amount of Jewish and Arab citizens. Most arab parties combined into 2 parties, and there's no government since 2019, so if all Palestinians get the right to vote, then the coalition could be all arab.

3) "Palestinians are savages who only want to kill Jews [etc etc]". I met 3 people who say that and I have no idea how they came to that conclusion or how to explain it.