Israel provides equal rights and representation for all of its recognized citizens. The problem for Israel is- to stay a Jewish state (as I noted before, this is a very illiberal concept for a mostly liberal people), it has to restrict citizenship/immigration.
Palestinians claim a “right of return”, which would allow them citizenship. Israel wants to deny that, for fear losing status as a Jewish state (alternative would be allowing border entry and instituting “real” apartheid, which would be anathema for them).
It is possible for a liberal democracy to have extremely restrictive immigration/citizenship laws, but the ones that do tend to be island nations- Japan, Australia, New Zealand. Somebody desiring Australian citizenship can’t just walk across a border (that said, Australia has had camps for undesired would-be immigrants).
I know I’m not really contributing any solution to this problem, just pointing out the complexities of the knot.