Jokes aside if it was only about having a safe space for the jewish they would have taken the Jewish Autonomous Oblast but they wanted that specific region for historical reasons and that is why they would have rejected the South German State of Israel the same way they ultimately rejected the Jewish Autonomous Oblast and by shrinking the German State (East and West combined compared to the Weimar Republic) to 1/3 of their previous size you would effectively end up with some hybrid form of the Palestine problem and the Donbass problem.

Personally I would have chosen an island like Sardegna where random invasions from your neighbours are unlikely but I think at the end they'd still have resettled Palestine even if you gave them the whole of Britain.