"Palestinians are second class citizens in Israel and are not even recognized. Instead they are referred to as "Arabs"."

From Wikipedia:

How to refer to the Arab citizenry of Israel is a highly politicized issue and there are a number of self-identification labels used by members of this community.[11][12] Generally speaking, supporters of Israel tend to use Israeli Arab or Arab Israeli to refer to this population, while critics of Israel (or supporters of Palestinians) tend to use Palestinian or Palestinian Arab without referencing Israel.[13] According to the New York Times, most prefer now to identify themselves as Palestinian citizens of Israel rather than as Israeli Arabs.[14] The New York Times uses both 'Palestinian Israelis'[15] and 'Israeli Arabs' to refer to the same population.

Common practice in contemporary academic literature is to identify this community as Palestinian as it is how the majority self-identify (See Self-Identification below for more).[16] Terms preferred by most Arab citizens to identify themselves include Palestinians, Palestinians in Israel, Israeli Palestinians, the Palestinians of 1948, Palestinian Arabs, Palestinian Arab citizens of Israel or Palestinian citizens of Israel.[5][11][12][17][18][19] There are, however, individuals from among the Arab citizenry who reject the term Palestinian altogether.[11] A minority of Israel's Arab citizens include "Israeli" in some way in their self-identifying label; the majority identify as Palestinian by nationality and Israeli by citizenship.[6][12]

The Israeli establishment prefers Israeli Arabs or Arabs in Israel, and also uses the terms the minorities, the Arab sector, Arabs of Israel and Arab citizens of Israel.[5][17][20][18][21] These labels have been criticized for denying this population a political or national identification, obscuring their Palestinian identity and connection to Palestine.[20][18][21] The term Israeli Arabs in particular is viewed as a construct of the Israeli authorities.[20][18][21][22] It is nonetheless used by a significant minority of the Arab population, "reflecting its dominance in Israeli social discourse."[12]

Other terms used to refer to this population include Palestinian Arabs in Israel, Israeli Palestinian Arabs, and the Arabs inside the Green Line (or the Arabs within Arabic: عرب الداخل‎).[5][17][20] The latter appellation, among others listed above, are not applied to the East Jerusalem Arab population or the Druze in the Golan Heights, as these territories were occupied by Israel in 1967. As the Israel Central Bureau of Statistics defines the area covered in its statistics survey as including East Jerusalem and the Golan Heights, the number of Arabs in Israel is calculated as just over 20% of the Israeli population (2010).[1]