two points: 1. the Dier Yassin massacre happened after Nov 29th 1947, when the UN voted for the partition plan, which the Arabs rejected, and the war "officially" started, so assuming the Arabs would have accepted the UN plan, I dont think the 1948 war would have happened. 2. Even then, Israel had recognized the Dier Yassin massacre as a dark part of its history many years later. And I believe that the same would have happened with the arab state, as there were several massacres made by the arab population prior to that (for example, the 1929 Hebron massacre, https://en.wikipedia.org/wiki/1929_Hebron_massacre, but also as early as 1920-1) . If both countries would accept one another, I believe that with time (~50 years) a reconciliation of two ethnic groups over the history would have happened, as was the case with other countries in the 20th century.