Quite so, the Jews arose from within the Canaanites. During the diaspora, the Jews retained their Jewish identity, while those who remained in the lands out of which they all emerged, eventually converted to either Islam or Christianity.
It is my view, and the view of many historians these days, that the Biblical stories of the Exodus and the conquest of Canaan are really just origin myths, stories developed to provide group coherence among those Canaanites who now identified themselves as Jews.
In "The Bible Unearthed," authors Finkelstein and Silberman argue that instead of the Exodus of the Israelites, followed by their conquering Canaan (Joshua), that for the most part they had always been there; they were simply Canaanites who developed a distinct culture.
Surveys of settlements in the Israelite heartlands don't show any signs of invasion, nor even peaceful infiltration. Rather, they reveal a sudden demographic transformation about 1200 BCE in which villages appear in the previously unpopulated highlands. And these settlements resemble modern Bedouin camps, which seems to show that the inhabitants were once pastoral nomads, driven to take up farming by the late Bronze Age collapse of the Canaanite city-culture.