Quote from Tag-MehirTzedek
Anyway from what I remember Rav kahane said that the non-Jews including the Arabs who accept Jewish sovereignty of the land of Israel will be allowed to stay (at least under his government) but they wont be in the army (he was talking about the Arabs at least) but would do work such as building bridges and other work instead for the time (that Jews do in the army).
He might of said such a statement when he was in politics because that was the maximum he thought he could obtain, but he makes clear in his book Ohr Haraayon that on the ideal level, the Torah relates to them like the 7 nations of Canaan.
A friend of mine who was close to Rabbi Kahane asked him why we don't make a campaign about the Druzim.
Rabbi Kahane more or less told him that for pragmatic reasons it was too difficult to raise the issue.
If you read Hebrew you could find out what Rabbi Kahane really felt was the Torah ideal about all these issues. Press on the link
http://www.rabbikahane.org/ArticleView.aspx?id=181Although he says much more about the issue I will quote a brief selection and try to translate it
מלבד קבלת התנאים של מסים ועבדות, הגוי שמותר לו להשלים, חייב להשליך מעליו ע"ז, ובכלל לקבל על עצמו שבע מצוות בני נח, והוא שרוב הפוסקים קוראים גר תושב. כי גוי העובד ע"ז אסור לו לשבת בא"י כלל וכלל, כמו שנאמר (שמות כג:לג): "לא ישבו בארצך פן יחטיאו אֹתך לי, כי תעבֹד את אלהיהם, כי יהיה לך למוקש". החשש מהשפעת הגוי העובד ע"ז על ישראל, הביא את הקב"ה לאסור עלינו לתת לגוים כאלה לשבת בתוכנו בא"י כלל וכלל. וכן נראה לי שכריתת ברית עם עובדי ע"ז, היינו נתינת רשות להם לדור אִתנו בשלום בא"י, היא חילול השם, כי בזה כאילו עשינו שלום עם הע"ז גופא, ח"ו. ונ"ל שזאת כוונת הלקח טוב (שמות כג:לב) האומר: "שאם תכרות להם הרי אתה כורת גם לאלהיהם".
Apart from accepting the terms of taxes and servitude, the Gentile that we are allowed to make peace with must throw off idolatry , including the acceptance of the seven Noahide laws , which the majority of authorities call resident stranger . For a Gentile that worships idolatry he should not dwell in the Land of Israel at all , as it is written (Exodus 23:33): "They shall not dwell in your land lest they cause you to sin to me when you serve their gods , for they will be for you a snare ." The suspicion of the influence of the gentile who practices idolatry upon Israel, brought the Holy One Blessed be He to forbid us to let these nations dwell with us in the Land of Israel at all. And it similarly it seems to me that forming an alliance with idolaters , that is to say giving permission to dwell with us in Eretz Yisrael in peace is blasphemy , because through this it is as if we made peace with idolatry itself , G-d forbid . And it appears to me this was the intent of the Lekach Tov (Exodus 23:32) that says "if you make an alliance with them behold you are making an alliance with their gods".
I stress from this quote alone you won't be able to conclude from this all the numerous conditions Rabbi Kahane explained had to be met before the Torah ideally will allow a Gentile to reside in Israel.