From your post I think it's safe to say that you know quite a bit about the history of the region. Therefore I take it that you are aware that
under the proposed plan put forward by the UN in 1947 Jerusalem and the land surrounding it would have been made a UN administered area. The Arab League was not happy with that plan so they invaded the day after the UN took control of the area. The 1948 borders are a result of this attack.
My point about the administration of the occupied territories since the early 80's is in the context of the cessation of any real threat of aggression from Jordan, Syria or Egypt by that period. In that context there was no excuse for the lack in investment by Israel after this period (not that there was much real excuse before that period).
I was not suggesting that the settlement issue only became a problem at that time, nor have I attempted to minimise it. I am aware that it goes back much further than the early 80's. I have always found it utter folly that the most bigoted portion of the Jewish Israeli population dominated the interface between the Jews and Palestinians.
I am also sure that you are aware that the Ottoman Empire controlled Palestine since the 16th century and that a state called Palestine never existed in modern times, that there was extensive Arab emigration into British Mandated Palestine and that the senses carried out under Ottoman rule were utterly unreliable.
I am not excusing Israeli excesses during this conflict, its partial culpability in setting the stage for the current conflict or its slip toward a much more theocratic state but the notion that the Palestinian people have arrived in their current state of dejection by the actions of Israel alone is just false. The Ottomans, the Egyptians, the Crusaders, the Persians and the Romans before then have all kept the locals under foot.
The solution lies with Israel, Jordan, Egypt, Syrian and the USA. They all have to work together to sort things out (and Iran just has to bugger off).