I think you have already answered the question actually.

How is it bad for Israel?

It is bad for Israel because of the

destruction of any goodwill Israel had after Oct 7

(And I’d add that Israeli citizens and family members of hostages are very upset and frustrated still at the lack of progress in getting the hostages returned. And I’d add how horrible it was when the IDF killed Israeli citizens who were escaped hostages trying to return home. I think one can hold the hostages and their families in the highest regard and with the deepest sympathies, and still understand that there’s something very wrong here.)

It is bad for Israel because of the

huge … displaced population

Having a huge displaced population along your borders is generally not considered a good thing, after all.