It would be a bad move. Israel would end up with nearly 5 million citizens who have waged non-stop war against Israel for 50 years.
Yes, these citizens will be one of the issues. One possible way to resolve this issue (at least partially) is granting them generous payments for resettling into Arab countries.
The best bet would be to annex all the strategic positions in the West Bank and cut both the West Bank and Gaza loose to fend for themselves
Virtually the same as it is now. And the current situation with permanent conflicts will last for eternity.
The only difference being, the Palestinians can't claim to be occupied.
Or, to be more accurate, they'd have to come clean that when they say they are 'occupied' they really mean that they consider every square inch of Israel to be an occupation.