Israelis would probably prefer that Palestinians live in one of the neighbouring Arab countries since they voted in a terrorist organization that explicitly wants to kill all Israeli Jews. But if they're not going to leave, they pose a security threat to the functioning state of Israel. Palestinians were occupied, then, because they were sheltering a terrorist organization that built miles of tunnels to infiltrate Israel, and that abused the Palestinians themselves. Or going further back, those lands were occupied because of the results of wars, etc.

It's not like Israelis want to be ruling over Palestinians. They want to get on with their secular lives, make money, and enjoy the luxuries of a First World life. The fact that Palestinians and the medieval Middle East can't keep up because they're obsessed with destroying or scapegoating Israel isn't Israel's fault.