I think Netanyahu's strategy with the settlements in the West Bank was to prevent the emergence of any viable Palestinian state there. And the reason he wanted to prevent such a state was because he considered it would pose an intolerable security threat to Israel. Of course there is a fanatical minority of religious Jews who want to claim the West Bank because it's the heart of biblical Judea, but I don't think that was Netanyahu's motivation (he isn't religious). His strategy was purely pragmatic: build a whole lot of Jewish settlements there and the Palestinians will not have a base from which to attack. The West Bank is on high ground overlooking most major Israeli cities, so I can understand the logic, even while i agree that it creates a very unfair situation for the Palestinians.
It must be remembered that the Netanyahu strategy only gained favour with the Israeli public following Arafat's rejection of the offer of a Palestinian state in 2000 and the decision to launch the second intifada. It wasn't reported much in the West, but the second intifada was absolutely brutal and radicalised a lot of Israelis - they were being blown up on buses and in restaurants every week. Over a thousand civilians were killed by suicide bombers and it only stopped when the IDF reoccupied parts of the West Bank and restricted travel between the WB and Israel.
There was also the lynching in 2000, when two Israelis took a wrong turn and ended up in Ramallah, where a crowd of Palestinian civilians beat them to death and then literally tore them apart and paraded through the streets holding their internal organs aloft. This wasn't Hamas, it was ordinary Palestinians who did this. I think the period between 2000-2002 was when a lot of Israelis gave up on the idea of peace with the Palestinians.
Pre-October 7, I was very much in favour of a Palestinian state. It isn't right that one group of people should remain stateless for so long. But I also don't see how a society that is so radicalised on jihad and Jew-hatred is going to run a successful state. It seems inevitable that any Palestinian state - even one not run by Hamas - would quickly devolve into a mire of corruption and terror, which would in turn spark another war in the region.
Israel too is becoming more radicalised and now has crackpot Jewish supremacists like Ben Gvir serving in the cabinet. You are correct that the settler movement and the Israeli far right are a huge obstacle to any peaceful settlement. But they are still a minority in Israel, and my sense is that if a movement for peaceful coexistence emerged on the Palestinian side, it would get a huge positive response from the majority of Israelis. The Western left really isn't helping things by encouraging the Palestinians in their racism and irredentism and joining in their 'from the river to the sea' fantasies of finally exterminating or expelling the Jews. (BTW the Arabic version of that chant translates as 'from the water to the water, Palestine will be Arab', which makes things a little clearer, doesn't it?). No one who is seriously interested in human rights in the region should be doing anything other than promoting coexistence and sharing of the land between Arabs and Jews.