The reason Hitler opted for the total liquidation of Europe's Jewish population was because he realized that deportation wasn't going to be a viable strategy in order to ensure a "Jewish free Third Reich."
His policy from 1933-1939 in Germany was to harass the Jews to the point whereby they decided to leave and self-deport. Howwever, this was only successful in driving ~50% of the Jewish population abroad. During 1938-1939, Jewish emigration declined as Western European nations increased restrictions on Jewish immigration and the remaining Jews decided to stay put in Germany, hoping that things would eventually get better.
As Hitler conquered Europe from 1940-1942, he increased the total Judaic population of in the areas under German control from 300,000 to 9,000,000. Permanent resettlement to places such as Madagascar or Poland were either logistically impossible or in contradiction of Nazi plans for Lebenstraum in the East.
Thus the Nazis had to formulate an alternative to deportation or resettlement. Treating them as second class citizens (i.e. like negroes in America) wouldn't eliminate the "Jewish conspiracy" in Europe and would run the risk of "degenerate Jews polluting German blood." The latter was especially a risk in places such as France, where Jews were more integrated with the general population and thus had greater chance to have children out of wed-lock with non-Jewish women.
Utilizing them as a permanent slave labour force (like negroes in America from ~1620-1865) was dismissed by Hitler as too risky. He believed that such a policy would kill off the weak and only leave alive the strongest of the Jews. Since they would be isolated from the general population, they wouldn't be "dilluted" by "inferior genes." Thus, Hitler argued, the Jews would become a "master race" of physically strong and intelligent peoples. Hitler could tolerate that risk while dealing with Slavic people as he believed that they were inherently stupid and idiotic*, and thus any "Polish master race" could be outwitted by German soldiers.
Committed to establishing a 1,000 Third Reich that would be permanently free from the "Jewish menace," Hitler and his ilk decided that in lieu of a viable deportation/suppression policy, extermination was the only "solution to the Jewish Problem." Thus the Holocaust and the total extermination of European Jewry became the offical policy of Nazi Germany in 1941.
If you avoid a pan-European War, or at least avoid the Nazis conquering nations with large Jewish populations (i.e. Poland, Soviet Union, Hungary), you avoid having the circumstances that led to Hitler and the Nazi establishment opting for the liquidation of the Jewish race. Germany would be free to expell the German Jewish population across their border to Poland and France. Ironically, this policy of international restraint, combined with a non-extermination based deportation policy would be a more efficent means of accomplishing the Nazis stated goal of a Jew-free Third Reich.
*Belief in this sterotype wasn't limited to the Nazis inner circle. In the English language, the term "slavish" implies that one is dimwitted and moron.
EDIT: Disclaimer: I'm not a Nazi or anti-semetic.