An interesting proposal...
It would go against the Israeli grain* to adopt an official policy of non-resistance, and the political consequences of standing by while the Palestinians gleefully sprayed Israeli blood across the landscape for that two years would be considerable. But at the end of that time, a point would certainly have been made.
*Goes against my grain too. Unilateral pacifism is normally a crappy idea, but it might work when one party (the Palestinians) has insufficient military strength to actually conquer its victim.