Why? First of all, we tried to give citizenship to Palestinians in East Jerusalem, they refuse.
Second, are you suggesting to annex Gaza and th West Bank, and giving them citizenship? That means the come election, Hamas would be the biggest party in the Knesset, revoke all democratic rights, and create a sharia state. That will be the end of the only democracy in the Middle East.
What do you mean by effectively under Israeli governance? In Jerusalem they refuse citizenship. In the West Bank they are Palestinian citizens, in Gaza they are Gazan citizens, not my fault that both sides chose a dictatorship 20 years ago.
Peace for Israelis is coexistence. Look at egypt or Jordan for reference.