As part of its longstanding effort to "divide and rule", Israel identifies them as "Arab Israelis" rather than the Palestinian citizens of Israel to separate them from their kin in occupied territories.
The majority of them live in all-Palestinian towns and villages located in three main areas: in Galilee in the north, in the "little triangle" in the centre, and in the Naqab, or Negev, as it is referred to in Hebrew.
By referring to the desert area of Naqab as Negev, Israel tries to achieve a fait-accompli to erase what remains for the natives - a name.
Up to 220,000 indigenous Palestinians are displaced within Israel and not allowed to return to their homes, while 43 villages, where more than 70,000 Palestinians live, are not recognised by Israel.
Azmi Bishara, a Palestinian citizen of Israel and a former member of the Knesset, says it is unrealistic and prejudiced for Israel to be both Jewish and democratic.
"I would call it trivial democracy. It is a democracy for Jews," Bishara told Al Jazeera.
He called for a fair and impartial state for all Israeli citizens, taking into account the sizeable non-Jewish community.
"The Israeli state was established in 1948 on the ruins of the Palestinian people. Now if you want, in the language which will be known probably in Australia or America or even in South Africa, we are indigenous people, the natives of the place," Bishara said.
"And Israel was built on our ruins. We did not immigrate to Israel in order to become Israelis, like many French people would like the Algerians to integrate into France or to be accepted as equal citizens.
"We did not choose to be Israelis. Israel came to Palestine, destroyed Palestine and emerged from the ruins of Palestine.
"We are Arab Palestinians. Israeli identity does not exist even according to Israel - they insist their identity is Jewish. There is no such thing as Jewish Israeli identity.
"Our Israeli citizenship was forced upon us. Now we use it as a framework for work to demand equality."
According to a report released by the Israel Democracy Institute in June 2007, about 56 per cent of the Jews in Israel publicly voice their opposition to full equality for the Arabs.
As many as 78 per cent of them reject the idea Arab parties should join the government or any crucial political decision-making body.
Tzipi Livni, the current foreign minister of Israel and a frontrunner in the race to become the next prime minister, told a group of secondary school students in Tel Aviv on December 11, 2008, that Palestinian Israelis should not remain in Israel once a Palestinian state is eventually created.
"My solution for maintaining a Jewish and democratic state of Israel is to have two distinct national entities," Livni was quoted by army radio as saying.
"And among other things I will also be able to approach the Palestinian residents of Israel, those whom we call Arab Israelis, and tell them: 'Your national aspirations lie elsewhere,'" Livni said.