I think the impetus for this proposal is the behavior of some Israeli-Arab members of the Knesset during times of friction and/or war between Israel and Palestine. These Israeli-Arab MKs clearly support the forces that are at war with the nation they are citizens of. To be blunt, this is nothing less than open Fifth Column activity.
Imagine al-Quida sympathizers in Congress praising bin-Laden and passing sensitive Congressional information from D.C. to AQ leaders.
Many Israelis consider it as treason. But treason during wartime in Israel is a capital crime, and is one of only three capital crimes in Israel that proscribe the death penalty. No one wants that. I think this proposal is/was a legal manuever to deal with such insidious activity within the Knesset while avoiding indictments of treason. It's a complicated issue.