I don't know how Israel would compensate the original Palestinians who were affected by the 1948 war. Most of those people are dead and gone by now anyway.You're killing them off a bit prematurely. Plenty of people who were adults in 1948 are quite lively these days. They would be seventy-something if they were twenty-something back then. Their children are fifty-something at most and certainly know where the family lived before they became refugees.
The problem is that a lot of their ancestral homelands no longer exist as they were then. Cities and towns have been built where there were once olive groves and grazing lands for sheep and goats.
The Geneva Accord offers this formula for compensation for property lost by Palestinians. Maybe you'd prefer to critique something tangible...
9. Property Compensation
(a) Refugees shall be compensated for the loss of property
resulting from their displacement.
(b) The aggregate sum of property compensation shall be
calculated as follows:
i. The Parties shall request the International Commission to
appoint a Panel of Experts to estimate the value of Palestinians'
property at the time of displacement.
ii. The Panel of Experts shall base its assessment on the
UNCCP records, the records of the Custodian for Absentee
Property, and any other records it deems relevant. The Parties
shall make these records available to the Panel.
iii. The Parties shall appoint experts to advise and assist the
Panel in its work.
iv. Within 6 months, the Panel shall submit its estimates to the
Parties.
v. The Parties shall agree on an economic multiplier, to be
applied to the estimates, to reach a fair aggregate value of the
property.
(c) The aggregate value agreed to by the Parties shall
constitute the Israeli "lump sum" contribution to the International
Fund. No other financial claims arising from the Palestinian
refugee problem may be raised against Israel.
(d) Israel's contribution shall be made in installments in
accordance with Schedule X.
(e) The value of the Israeli fixed assets that shall remain intact
in former settlements and transferred to the state of Palestine
will be deducted from Israel's contribution to the International
Fund. An estimation of this value shall be made by the
International Fund, taking into account assessment of damage
caused by the settlements.
http://www.tikkun.org/community/geneva/index.cfm?action=full_text