I don't get how it can work. So they make the exclusion zone outside of the fence, not inside. Then they would need to make another fence around this exclusion zone. Then peaceful protesters destroy the old fence, and we are back to square 0.
Shooting people who cross a border without permission, while also not optimal in the case of peaceful protestors, is quite different than shooting peaceful protestors on the foreign side of your border in a territory you assert is not occupied and which further claim you have disenaged from and are not exerting control over.
Israel limiting its arbitrary murder zone to Israel proper would, while still arguably acting immorally, be at least acting consistently with its claim to have disengaged from and ended its occupation of Gaza. Baby steps.
Border between Gaza Strip and Israel on the other hand is not even officially delineated AFAIK, it just de facto exists where the barrier is. So if you make a new barrier 500 meters away, and let the old one be slowly destroyed - as Hamas is not interested in maintaining it - it doesn't change anything, except the de facto border is now 500 away from the old place.
The Israel-declared buffer zone is 100m or total exclusion, and 300m where only farmers may enter and only by foot. In practice the murder risk area (during normal times, not during publicized invasions, where the murder risk area is more universal) is 1000-1500m.
This is, of course, inside Gaza; nothing prohibits Israel from backing its border installations off a safe distance from the border and having a murder zone in Israel instead, which would at least be superficially consistent with its pretense not to occupy or exert any control within Gaza between its periodic invasions.