Treating them as "undocumented aliens" or some sort would be the better option if Netanyahu were really planning on going for broke and trying to seize all of the West Bank, or deporting them and throwing money at them for the confiscation of land (after annexing the West Bank, of course). That would all be contingent on having a very strong pro-Israel President in the White House, and probably only be possible against the backdrop of some major action against Israel from Hamas or Hezbollah (I'm thinking it would have to involve WMD of some sort, most likely chemical weapons). In that scenario, Israel might have a chance of getting away with it.

In any other world, though, Israel is probably just trying to keep as much of the West Bank as possible in its final deal. A good deal for the Israelis would involve paying compensation for the land that falls inside the perimeter fence, retaining the right to reoccupy if any heavy weaponry or army enters or is created in the West Bank, keeping East Jerusalem permanently, and demanding recognition by at least most of the Arab states.