There are living 2 million people in gaza. Germany has currently 1 million Ukrainian refugees and poland also another million. So it is not like it would be impossible for the arab countries to absorb them.
I’m with you though when it comes to your point that they do not want to give up their presence as a thorn in Israel’s expansion. They (the Muslim Arab world) would never again gain a better bargain against Israel. Giving them the land would be a victory for Israel that would hang like a shadow over their history for centuries - or so they see it. The Arab world can (from a religious standpoint) never accept the jewish nation invading their sphere. If it were not for Israel, the Middle East would have formed a strong combined player in the geopolitical game. For some moments in the early 1900s it almost looked like syria were able to unite the Arab world to transform it into a single voice sitting in between asia and Europe. But external forces and internal ethnic differences and in the end the Israel state made it permanently impossible for the region to unite. The fallout is what we see today. If it were not for the religious aspect and the Arab world would have given Israel „its land“, it might would have even started relations with each others by now in economy and technology, being a vital partner in developing the Middle East. But both the arab world and Israel are the religious bigots that they are and that is hindering the evolutionary development in their own interest.
I I think the west knew how much the Arab world would chew on this for the next century when they bid to put Israel in that area. The power move by the Arab world would have been to accept it and create political relations with it to profit from this strong economic player. But some in the west knew that this would be impossible for them because of their deeply religious rooted society. It will keep the Middle East out of the game for another better half of half century. To profit from Israel would mean for the Arab world to transform their nations from a theocracy to a modern national state, where not religious doctrines are used to narrate to their people for control. But the people in power need the theocratic narration to stay in power. A strong Middle East would have been a United Middle East (Syria 1900s), where a national state is put above the theocratic narration to keep control of the people while benefiting hugely from trade and technology as religious differences is not hindering talks with one another anymore (Inside and outside). Israel would have never happen to a United Middle East and now they can never change because the differences is absorbed into their theocratic narration. They are locked into a limbo of not being able to progress - all because Israel.