If Bibi gets his way, new citizens will have to declare allegiance to Israel as a "Jewish and democratic state." The oath now in force requires allegiance to the state of Israel. The new one, which has to be approved by the Knesset, embodies one of Israel's dilemmas. Arabs and other non-Jews can vote, and someday there could be enough of them to vote to change the oath back again.
Netanyahu is thought to be proposing the change because the Israeli side is pressuring the Palestinians to recognize Israel as a Jewish homeland. Maybe he's giving himself domestic political cover for a concession to the Palestinians on settlements, which would keep the peace talks alive at least for another two months.