A flexible practical leader like rabbi kahane, as oppose to a monarchy, would be more comfortable.. I don't think he would thought of going for a monarchy any time soon , and he wouldn't even have wanted to scare people with the idea. He said we are a sick people, and things have to be gradual, and he wouldn't want a civil war.
The way I see it. Since Israel is not meant to be a hebrew speaking portugal, it's a religious place and concept. If an oppressive jewish religious regime takes hold of it, enforcing halacha in public, then that's fine with me. I think anybody that doesn't like it should leave.(and if you like it a little bit then come as a tourist)
But rabbi kahane wouldn't have wanted such enforcement like that, not when it's not accepted.
note- the reality is changing with a religious majourity, rabbi kahane never really wrote about that reality. He only dealt with the immediate reality, unfortunately.
Now, although rabbi kahane didn't want enforcement if it would lead to civil war.. he would have started with a ban on intermarriage, and i'm sure some other halachic imperatives, in public.
Not total freedom to act against the torah in public.
Any religious jew, from non zionist to religious zionist, would say, that Israel is like the Kings palace, and one has to be on one's best behaviour there. Rabbi Kahane mentioned G-d's wrath, and we don't want that. Sinning in israel is extra bad and extra dangerous.
In primary school we had this really fanatical rabbi that would punish all of us for the sin of one person. And he would say -it's like a we're all in a boat and somebody starts drilling a hole in it- I think there's a gemara about that, to do with how G-d punishes us. The fact is that G-d punishes us like that. He also rewards us like that though.
Ezekiel Chapter 36, if I recall, (I read it once when I heard rabbi kahane quote from it in his speech to noachides). On my reading of it, and these aren't the verses of subject that rabbi kahane discussed, G-d put us in Galus because it's better that we sin in Galus than we sin in Israel, defiling the holy land.
Infact, some of the most extreme anti zionists take the position that Israel is SO holy, that it is too holy for regular religious jews. Only the greatest of the generation can live there!! Like the RAMBAM or Rashi or RAMBAN. Not even they themselves. Their argument was that the generation thrown out were far greater than us, and even they were thrown out.
Note- Judea in his program I think stated that the generation thrown out were worse than us, idolators and stuff.. something like that.. and they were still blessed with prophecy. (stated possible reason from shabbetai ben dov, as that they were normal and understood that we are a people in our land) I may have misremembered a bit but there was something like that. Hopefully he's reading!.