Ummm, he could have responded that they already have. Vatican City (an independent country) is situated in the city of Rome.
What about the "right of return" of Italian citizens to the Vatican? What about unlimited immigration of Italians to the Vatican? What about the "apartheid walls" surrounding the Vatican?
Would the pope consider ceding half of the grounds of the Vatican to Rome for the empty promise of peace with vandals and killers?
So why should Israel?