As much as I am "Dati Leumi" I don't agree w/ this "HaShem gave us the Land" mentality. We have the Land in as much as we obey Torah Mitzvot, both the commands and the ethics. Just because we are there now, does not mean we've earned it's total ownership. If we had, Moshiach would be here and so would the Beit HaMikdash.
As far as dealing w/ the Palestinians "Halachically", the command to rid the land of its inhabitants was regarding the native population back in that time, not the Arabs there now.
I'd say, deal w/ them as you would any human being who is "Betzelm Elokim", made in G-d's image, but remember that family comes first.