So far as I can tell the quote is genuine, taken from a conversation with Nahum Goldmann in "The Jewish Paradox : A personal memoir" (translated, presumably from Hebrew).
Ben Gurion was apparently disagreeing with Goldmann's optimism about Israel's prospects for peace. Evidently he had a pretty clear perception of the Arab perspective, and was arguing it to Goldmann as his reason not to be optimistic.
I think he got it right. God's alleged promises to the Jews does not entitle them to ownership of the land they say he promised. The history of Jewish nationhood two thousand years ago does not entitle them to current ownership. Jewish suffering during the Holocaust also does not entitle them to compensation out of Arab possessions.
The ultimate justification for the existence of Israel derives from modern secular history:
1. The Jews, motivated by religion, history, and concern for their physical safety as a minority, sought to establish a safe haven and homeland in their ancient territory by buying land in Palestine and settling there legally, under the British Mandate and the Balfour Declaration.
2. The Arabs, motivated by age old religious hatred of Jews, desire to dominate the land they lived in, resentment of Jewish land purchases, resentment of the British, and growing exclusion from Jewish enterprises (triggered by Arab hostility), opposed the Jews violently. The Arabs started the violence as early as 1920; eventually, the Jews started to defend themselves.
3. The UN voted to partition the land. The Jews agreed, but the Arabs launched a war of annihilation against them. The Arabs lost the war, and a lot of land that was used to wage it.
Israel's existence rests on the right of its inhabitants to self defense against the Arabs who tried to kill them for reasons that did not justify killing.
And that's what Ben Gurion meant when he said, "Otherwise the Arabs will wipe us out." He understood very well this aspect of the Arab perspective, too.
He was able to empathize with his enemy's grievances even as he mounted a strong defense against their attempts to murder his people. Very impressive.