$40 billion over 26 years does certainly sound like a lot of aid money, but it works out to just around $300 per Palestinian per year, which is, I think, not even enough to counterbalance the economic damage that Israel imposes on Palestine (and especially Gaza) through movement restrictions and trade barriers and blockades. It certainly pales in comparison to the budget of the Israeli military (which, admittedly, obviously has more on its plate than just Palestine, and couldn't be entirely repurposed towards aid). At any rate it's not in the realm of what I contemplate as a Marshall plan approach.
And for it to work, that aid all has to come prominently stamped "courtesy of your friends in Israel". International aid from other sources can improve living standards but doesn't build much goodwill with the neighbours.
But I agree with you on the rest of what you say.