'Make a decision - are you citizens of Israel, or of the Palestinian Authority?" Yisrael Beitenu MK David Rotem challenged the Arab citizens of Israel in a recent Israeli news interview. Sadly, on the eve of Israel's 60th celebration of independence, ongoing Israeli policy is pushing almost one-fifth of our citizenry - the Arab Israelis, or Palestinian citizens of Israel - into the corner of choosing between being Israelis or being Palestinians; when, in fact, they are both. This impossible choice plagues not only the million Palestinian Arab citizens of Israel - living in Ramle, Lod, the Galilee and the Negev. Rather, it poses an existential dilemma to the basic vision of our country.

I IMMIGRATED to Israel, in 1980, to be part of building a society of which I, a liberal Jew from America, could be proud. Often, I am proud of being an Israeli. When my kids and I push through the Hebrew Book Week crowds, eagerly choosing from among thousands of works of fiction, non-fiction and poetry, written in a language that was unspoken 100 years ago. When I go to my Kupat Holim HMO in Jerusalem, and my doctor is Armenian, our pediatrician is a Mizrahi Jew, and the eye doctor is a Russian immigrant. When I walk through the Knesset, and see ultra-Orthodox MK Eli Yishai, secular-Jewish MK Zahava Gal-on, and Muslim Arab MK Jamal Zahalka - all legislating for the State of Israel.

Today, Israel stands among the developed nations as a world leader in health care and technology. There is a lot to be proud of in Israel. A lot to be ashamed of, as well.

In the Negev, the Israeli government continues to refuse 70,000 Beduin citizens the right to settle on lands they have inhabited for centuries. In Israel's mixed Jewish-Arab cities, building permits are denied to rehabilitate Arab homes, while adjacent Jewish neighborhoods flourish. In the Galilee, rather than investing in developing Arab towns, the government continues to constrict their lands in order to expand Jewish towns. As a result, in modern, successful Israel, over 50% of Israeli Arab families live under the poverty line.

SIXTY YEARS ago, the young State of Israel, using the Absentee Property Law, appropriated hundreds of thousands of dunams of land, owned by Arabs who had fled their homes - in the Galilee, the Negev, the mixed cities of Ramle, Lod, Jaffa, Haifa and Acco. Over the coming decades massive government (and international Jewish) investment gave birth to scores of new Jewish development towns, kibbutzim and moshavim throughout the country - consolidating possession of the land. Meanwhile, the Arab towns and neighborhoods that remained continued to be restricted, receiving little public investment, and facing labyrinthine planning systems designed to limit their development, or even re-allocate their remaining lands.

In 2008, this ethnic approach - draconian, yet necessary in the 1950s and 1960s - still dominates national land use and development policy in Israel. Today, if we continue this approach to building the "Jewish democratic state" we doom ourselves to a non-democratic state, known to the world as "Jewish." But such a state will not be Jewish in ways of which we can be proud.

AFTER 60 years, it is time to re-design our current path, with the aim of building a society that fully belongs to both its Jewish and Arab citizens. This aim is not only just; it is in the overall Israeli interest. It also affects, and is affected by, any effort to achieve a two-state solution.

First, despite Yisrael Beitenu's demand to choose, Arab citizens of Israel are Palestinians. In some cases, they are the sisters or cousins of those who left in 1948, who are now living in Jordan, in Lebanon, and in Gaza. In all cases, one million Palestinian citizens of Israel maintain a constant balancing act - between their identification with their Israeli citizenship, and their identification with their Palestinian peoplehood. When their attempts to build a legal home or develop their neighborhood are rebuffed, their identification with Israel weakens. When their country bombs or shoots their people the balancing act becomes intolerable.

Second, failure in building a two-state future increases the national conflict among citizens inside Israel. Since the beginning of the Oslo process in 1993, until its violent interruption in October 2000, most Arab citizens of Israel sought their own civic aspirations in achieving equality in the state in which they lived - Israel. They sought, for their stateless Palestinian brethren, a Palestinian state alongside Israel.

As the prospect of a Palestinian state dims, and Israeli government policies and proclamations continue seeking to "Judaize" the Galilee and the Negev, Arab citizens of Israel turn increasingly to the idea of achieving Palestinian self-determination within the State of Israel. The more that mainstream politicians regard Arab citizens as a foreign element to be contained and later jettisoned in a "land swap," the more these same citizens withdraw from participation in Israeli democracy, and seek their future through increased autonomy - as a national minority within Israel.

AS WE celebrate Israel's 60th birthday, we need to make a paradigm shift, and to re-envision our society. Sixty years after the founding of the state, we must declare an end to stage one of Zionism - state-building - and move to stage two of society-building. We need to redefine our Israeli civic enterprise, not as a Jewish State, but as a Jewish Homeland, in a state with shared citizenship. Otherwise, in clinging to the visions that have guided Israel in the past, we will destroy what has been built.

Israel - within its pre-1967 lines - is a shared home. It is a Homeland for the Jewish people; but it also a home for the descendants of the Arabs who were living here and became citizens in 1948. Over these 60 years they, too, have worked, paid taxes, and built their future and their children's future here in the land of their birth.

At the same time, if our Homeland is to be genuinely democratic, with a Jewish majority, a viable Palestinian Homeland must be established alongside ours - with its own Palestinian majority and law of return for Palestinians. As Prime Minister Ehud Olmert said at the Annapolis conference in November 2007: without the two-state solution, Israel is "finished." As long as only one state exists in this Land (between the Mediterranean Sea and the Jordan River), our Jewish national home will not be sustainable. Sixty years after achieving statehood, our national home awaits this completion.

The immediate steps on the path to this vision are clear. Jettison the settlement enterprise - both within the Green Line ("Judaizing" the Galilee, the Negev, and the mixed cities of Ramle, Jaffa, Acre and Lod), as well as beyond it (in east Jerusalem and the West Bank). Dismantle institutional discrimination - particularly in land-use, planning, and resource allocation - and develop the country for all citizens equally. Teach Hebrew and Arabic as the official languages they are; and teach the histories, narratives and poetry of both peoples in our schools. Pursue "complete equality of social and political rights to all inhabitants" - as proposed in Israel's Declaration of Independence.

After 60 years of independence, it is time to recognize that an Israel that attempts to neglect, dispossess or exclude its Arab citizens is not Jewish; and is not sustainable. It is time to stop defining the Jewishness of the state by the amount of land controlled by Jewish towns or citizens, but by the justice of our society. It is time to be guided by the vision of Israel as a decent, fair, democratic society for all Israelis -Arab and Jewish - as we pursue a two-state solution that will allow national fulfillment for both peoples.