First of of all it is just a myth, that Israel was created because of Holocaust. Zionist migration started in 1880 already in Ottoman times. Bu the beginning of WW2 Jews had already de facto state. They had government, transport companies, armed forces, universities... even labor unions and philharmonic orchestra.
Secondly, what kind of punishment are you talking about? Arabs in Israel live much better than in neighbor countries. Look whats going around Israel: Lebanon - failed bankrupt state ruled by armed gangs and mafia. Syria - crazy dictator literally genocides his people. Egypt - super poor country with feudal system where army is a separate ruling caste. Jordan - also very poor country which largely survives thanks to Israel.
Dude , we treated the East timorese and west papuan as our own with all the bell whistles and everybody get stomped equally during soeharto's . Without land grabbing , their own tribal people holding the day to day administration office and etc-etc . Yet , after the perfect living example of PNG and ET abysmall achievement were presented there are always some nutjob demanding for separation for a whatever reason and ideas . You Just could never kill the aspiration of other ... especially the downtrodden one .
You just couldn't ....
The basid demand of moslem community was the 67 border . Either that or kill the rest of moslem around cleanly as fast as possible because the clock are ticking in fast for the other consequences to come knocking in due time ....
Salam