Israel does not have a problem with a certain percentage of Palestinians becoming Israelis. They have a big problem with too great a percentage of Palestinians becoming Israelis. That is why the Israelis strongest red line (and with good reason) is the Right of Return which would allow too many Palestinians to claim Israeli citizenship.
It is an interesting question what the Israelis would have done had its Arab neighbors not given Israel the chance to chase most of the Palestinians out of Israel. But you are wrong if you think Israelis would take the Palestinians in the West Bank and Gaza if that was offered.
But if that is Blackwell's position, good for him and he should say it. I just doubt it is.