Palestinians in the occupied territories may not be Israeli citizens, but neither were the South African residents of the bantustans, so which passports the subjects of Israel holds doesn’t matter. What matters is that Israel controls most aspect of their lives and imposes different rules and condition depending on whether you are Israeli or Palestinian. However you separate the population doesn’t matter either, the fact that Israel does is all that counts.
There is a different legal system on the West Bank, true, however the Israeli settlers living there get charged in Israeli courts, and so do Palestinians, except that Palestinians get charged in a different court system, namely military court. This is a double justice system, and there is no other way of describing it. Modern liberal democracies don’t have those, only apartheid states do.