The Arab muslim nazi city of Qalqilyah sits right at the tip where the "green line" is closet to the sea and this is just one example. So yes Israel would retreat to an insanely narrow border even if settlement blocks are kept.
There are Arab nazi settlements that are adjacent to Samaria within the green line. The Arabs who live there would refuse to be annexed into "Palestine", they will keep their citizenship anyway, and I think it is very unlikely that a swap will include any such Arab settlement. The likely areas to be swapped are Parts of the Negev adjacent to Gaza and parts of south mount Hebron.
The Jordan valley being a buffer between Nazi Jordan and Judea and Samaria is of great strategic value. It is an Area with very thin Arab population and Jewish settlements are spread all the way down to the dead Sea. In case of invasion from the east the heals overlooking the valley are clearly very important but moreover it is the buffer itself which keeps the Arabs from smuggling into Judea and Samaria missiles and other weapons like they do in Gaza.