It was fine, more or less, when Jews & Christians were fairly insignificant minorities, seldom seen & rarely heard from, in a land sparsely populated. Once Jewish numbers increased they were met with riots & pogroms. The Arabs weren't without cause—Jews displaced fellahin workers who had worked the lands for generations without reference to who might have owned it before. It's a bit harder to manage when the population is denser, resources scarcer & the demographics more even. Who ensures this peaceful equality of resources & authority? The British couldn't keep them apart even with several divisions worth of troops there.

What you envision is really just another Arab nation in the ME. And that's okay. But there's no reason to think Jews would immigrate into such a country. Why? For the weather? The hummus? I just think one ought to be realistic about the consequences such a change would entail.