Actually I was a bit wrong (I had been told this by others but only research the details now to provide you with references) so here are the corrections:

• First I had it the other way around - it’s the nationality that has Jewish and non-Jewish, not citizenship. Specifically Israeli nationality is only for Jews and it’s for any Jew independently of were they are born source
• Second, it’s not all Arabs that are discriminated by law when it it comes to citizenship, it’s only some who, although born in the territory of Israel are seldom given Israeli Citizenship when they ask. This applies not only to the occupied territories in the West Bank and Gaza but, more shockingly, Jerusalem source. This is why once in a while you get news of Arabs being evicted from their houses in Jerusalem: they were never actually given Israeli citizenship even though they were born in Israel and if they apply they are unlikelly to get it as per Israeli law they have no right of birth to it.

And then of course there are plenty of sources refering to Israeli Arabs being treated as second class citizens, such as this Bloomberg article

PS: I also remembered how some of the details I listed above, such as how Israeli Arabs can be refused license to live in certain places, came from a Documentary I saw on TV years ago. If I remember it correctly it’s done via a scheme which is a bit like “housing associations” but for for larger areas (towns?) were people have to apply to them to be allowed to go live there and in many places Israeli Arabs are simply never accepted so they can’t go live in those places.