"Israel refused to allow Palestinians to return to their homes so Jews could steal their property."
Israel could not simply agree to allow all Palestinians to return, but consistently sought a solution to the refugee problem. Israel’s position was expressed by David Ben-Gurion (August 1, 1948):
When the Arab states are ready to conclude a peace treaty with Israel this question will come up for constructive solution as part of the general settlement, and with due regard to our counterclaims in respect of the destruction of Jewish life and property, the long-term interest of the Jewish and Arab populations, the stability of the State of Israel and the durability of the basis of peace between it and its neighbors, the actual position and fate of the Jewish communities in the Arab countries, the responsibilities of the Arab governments for their war of aggression and their liability for reparation, will all be relevant in the question whether, to what extent, and under what conditions, the former Arab residents of the territory of Israel should be allowed to return (Howard Sachar, A History of Israel: From the Rise of Zionism to Our Time).
The Israeli government was not indifferent to the plight of the refugees; an ordinance was passed creating a Custodian of Abandoned Property “to prevent unlawful occupation of empty houses and business premises, to administer ownerless property, and also to secure tilling of deserted fields, and save the crops...” (Joseph Schechtman, The Refugee in the World)
The implied danger of repatriation did not prevent Israel from allowing some refugees to return and offering to take back a substantial number as a condition for signing a peace treaty. In 1949, Israel offered to allow families that had been separated during the war to return, to release refugee accounts frozen in Israeli banks (eventually released in 1953), to pay compensation for abandoned lands and to repatriate 100,000 refugees (Terence Prittie, “Middle East Refugees”).
The Arabs rejected all the Israeli compromises. They were unwilling to take any action that might be construed as recognition of Israel. They made repatriation a precondition for negotiations, something Israel rejected. The result was the confinement of the refugees in camps.
Despite the position taken by the Arab states, Israel did release the Arab refugees’ blocked bank accounts, which totaled more than $10 million, paid thousands of claimants cash compensation and granted thousands of acres as alternative holdings.