> 27% of Israeli citizens are not Jews, but Arabs. They have full citizenship, vote, hold office, etc.

How does that have anything to do with the conflict? Could there ever be 51% of Israeli citizens who are non-Jewish Arabs? That tells you why Israel will not extend rights to the majority of subjects under it's territorial control.

> Gaza is a competely separate country/territory

It is not. Israel does not recognize it as such, and Israel controls all the borders, all the electricity, all the water, all the Internet and essentially all the external commerce of the region, it even controls the waters off shore of the region.