Let’s kill two birds with one stone.
Let’s give the Palestinians a state in the middle of Iraq. Give it a nice big infusion of US dollars and US infrastructure, and then let it govern itself internally as an autonomous statelet akin to Lesotho under the old South African regime. Invite the other Arab nations to send material support to this new Palestine as it grows and prospers.
In the rest of Iraq, this provides a new source for desperately needed national unity: the new, hated Palestinian minority. Since the Palestinians will mostly be hundreds of miles away, the dislike can be merely cordial and expressed in violent soccer games. Any Palestinians who are honestly anti-Semitic will be highly pleased at the relative absence of Jews.
The Iraqis will of course be very angry at us for doing this. This is actually good for us, because it might replace some of their anger at us for effectively trashing their country. On the other hand, if we pitch the deal right, they might end up not hating it so much. Surely we’d have to buy an awful lot of land from an awful lot of people – perhaps people who wouldn’t mind getting a good market price for land they currently don’t want to live on. That makes a little more room for the Palestinians, too, and means that they aren’t going to arrive to an empty desert. And I’m sure the government of Iraq could see the benefit of a bunch of US-built infrastructure in the middle of the country.
In Israel, the Israelis and whichever Palestinians decide to throw their lot in with the hated Jewish oppressor will be happy. Presumably enough Palestinians will stay for the sake of their jobs that the region won’t be thrown into economic chaos, but I imagine they will manage. Since I assume that any Palestinian who honestly hates the Jews will toddle off to the new homeland, hopefully terrorism and violence there will be greatly reduced.
Other than the cost to us, I can’t see a downside.