This is a terrific question for which there is no clear answer. As a Conservative rabbi, I understand Halakhah to exist and derive from historical contexts, beginning with the Bible, through the Rabbinic periods, all the way to today. Therefore, because Israel is a place which has absorbed historical influences, these perspectives have evolved and continue to evolve. Let me explain.
During the time of the Bible, it would never have occurred for Judaism to exist outside of the Land of Israel. Jewish observance hinged on the Temple and a connection to agriculture. Ethnicities, religion, and geography were inherently interconnected. Therefore, we can understand why the Bible describes the land itself as holy (Zech. 2:6) and a metaphor for beauty and wonder – “flowing with milk and honey” (Ex 3:8). Indeed, there are some commandments that one can only fulfill in the land itself.
This sort of view is reflected in early Rabbinic literature, such as in the Mishnah where it claims that Israel is holier than all other lands because of the agricultural sacrifices it supplies (Keilim 1:6). We also see this in Midrashic literature, where Israel is described as the only one worthy of the Jewish people and Torah (Lev. Rabbah 13:2) and that living in the land alone actually atones for sins (Sifrei, Deut. 333). Some of the Rabbinic, positive attitude toward the Land of Israel is also a backhanded critique of peoples outside of the Israel, such as when it equates living outside of Israel to being an idol-worshipper (Tosefta, Avodah Zarah 4:5).
After the destruction of the Temple in 70 CE and the dispersion of Jews around the world, the center of Jewish scholarship moved to Babylonia. Here we see a shift in Rabbinic attitudes toward living in the Land of Israel. In fact, the Talmud offers Rabbinic statements claiming, “He who resides in Babylonia, it is as if he resided in the Land of Israel” (Ketubot 111a).
Such a shift in attitude is not only a function of historical influences, but of the inherent resilience and ingenuity of Rabbinic Judaism. That is to say, after the destruction of the Second Temple, Judaism became portable. In the centuries following this calamity, we see the development of Jewish literature: Jewish law (Mishnah), Jewish legends and parables (Midrash), and the prayer book. We also see the development of systems and structures of Jewish life that enables one to take Judaism anywhere, such as the calendar (which includes dates specific to those outside of Israel), as well as the local synagogue and school (Beit Midrash). In other words, holiness can be taken with us wherever we go.
For thousands of years, Jews did not have the kind of opportunity to live in the Land of Israel that we have today since the establishment of the State of Israel. However, we know from their writings that they yearned for returning to the land and for the ideals of justice and freedom that the Land represents. Therefore, with this newfound opportunity that the State of Israel presents, the question of the obligation of living in the Land of Israel seems shift to a different kind of question – not one of Halakhah. Instead, I would ask: Where can I live out Jewish values and observances best, while taking into consideration the commitments I have to myself, to my family, to my community, to the Jewish people, and to God? The answer could be different for different people.