I had a really long detailed reply but it got lost so here goes.
SETTLEMENTS
The word is used in Hebrew describes every place built by Jews for zionistic purposes so Petach Tikva Rishon l'zion (towns) as well as more recent ones.
To understand the history of "settlements" and the "West Bank" you have to go back to at least 1947.
In 1947 the UN passed a vote drawing up boundaries for a Jewish and Arab ie Palestinian state. They did this as a result of about 100 years of Zionism including developing and buying land in what is now Israel, the current political views on nationalism (the Palestinians came in rather late in the game on this but turning what had previously been large areas with disparate groups into individual nations was a thing which had been going on since late 19th century and very much so after 1918 and 1945) and in part because of the inaction and in some cases deliberate ignoring of nearly every Western state of the plight of Jews during the holocaust. By way of note the Mufti of Jerusalem, the quasi leader of the Palestinians during WW2 had tried to invite Hitler to Jerusalem so he could deal with the Jews there and Iraq and parts of North Africa were also involved in the Holocaust and general pogroms.
Although the state of Israel was not declared until May 1948 from the UN vote until that date the local Arabs ie the Palestinians proceeded to attack all Jewish settlements throughout the then Palestine as they obviously weren't pleased with the decision. This was because the decision they wanted was for an entirely Arab state.
On the day Israel declared independence 5 Arab armies attacked it - Syria, Transjordan, Iraq, Egypt and Lebanon. By a miracle it survived but ended up with very different borders from the ones the UN had marked. Some parts which should have been in were out and some which should have been out were in. In addition, many Jews had been killed as a result.
The Arabs had fled their homes at the start of the war, some because they were conquered by the new Israeli army others because they believed the Arabs would win but didn't want to sit around in a war zone and thought they'd go back after it was over.
At this point in 1948 these Arabs could have taken over their new areas and started building a country. Or they could have been absorbed into the neighbouring countries bearing in mind that borders in the middle east had been pretty fluid since 1917. Instead the Jordanian and Egyptian and Lebanese governments kept these people in refugee camps for reasons of their own not least that when you are not quite democratic governments having a convenient scapegoat to centre popular hatred away from yourself is a useful thing to have. If you want an example of a government who dealt rather differently with a similar event look at the Finnish government response to the USSR annexing 10% of their land in 1945 on incredibly unfair grounds.
In 1967 on the belief that they were about to be attacked Israel pre-emptively attacked Egypt and then the war esclated with entry of Syria and Jordan. As a result of this war known as the 6 days war for its length all the "occupied territorities" were conquered. At the time it was believed that most would be given back in return for peace.
In 1973 Egypt and Syria attacked Israel on Yom Kipur the holiest of all days in order to regain their territory. They failed but in 1982 following a peace treaty with Egypt Israel handed back most of the Sinai peninsula including evacuating a settlement made since 1967 called Yamit.
Since 1967 one of the right wing positions has involved building up the territories captured then. For some this is on the basis of security whereas for others it is a religious ideology which will lead to the coming of the messiah. The latter particularly the extreme end are in my view mad.
Attempts have been made by various governments to try and withdraw from the territories in return for peace. The most recent attempt was Sharon's withdrawal from Gaza and some of the West Bank in 2005. 25 settlements were destroyed, 9000 settlers relocated and rockets started raining down from Southern Israel shortly after as previously these settlements had acted as a buffer zone for the rest of Israel. So hardly a great example of giving land gets you peace.
So why were the settlements there in the first place? Because the Arabs wanted to drive the Jews in the sea (that is a direct translation of the rhetoric used in 1948 and continued to be used today by Hamas in Arabic), they failed and Israel continues to try and stop them.
Personally I believe the only way to peace is to put the Palestinians in a position where they are economically stable and the desire for capitalism and maintaining the status quo overrides the desire to follow lunatics. Given the appeal of said lunatics worldwide nowadays I'm not sure that would give total peace.
There is no "entrenched and fundamental racism in Israeli land policy". Quite simply Israel believes the country is their biblically and historically but most governments are prepared to barter with what they have for peace. They will also co-exist providing the Palestinians want to co-exist. There are various Arab groups living in Israel including the Druze who serve in the IDF. There are also schools where Jews and Arabs learn together. Yes they are in a minority and no Israel isn't wonderful in everyway but at the end of the day it does try to deal with considerably more difficult issues than most Western countries face in a democratic manner which is more than can be said of the rest of the region. The Palestinians believe the whole land is theirs historically and their rhetoric is it will only return when there are no Jews left or on the moderate view treated as second class citizens in the way the few Jews left in Muslim countries are. And of course this only applies to any Jews who could prove they were there in 1914 not to any Holocaust survivor or approximately 1 million Jews expelled or forced out of Arab lands where they had lived in some cases for over 1000 years as a result of hostility to Israel. Which policy is racist?
MrsJREWING - regarding your claims of psychopaths what do you think of this news clip in which Hamas openly admit to placing their own women and children in positions where they will get killed in order to further their aims
IMO that is truly psychopathic