In truth, the lands in dispute are lands that Israel obtained (usually by force) from neighboring Arab states leading up to 1967.
The disputed areas are Golan Heights (ceded from Syria), the West Bank (taken from Jordan) and the Gaza Strip (taken from Egypt). All of these are currently occupied by Isreal despite their majority Arab, non-Jewish inhabitants. When Israel was planned in the 1940s, Britain, France and the U.S. did not push any immigration limits for the closely-bordered state. But as many Jewish people from Europe wished to live in their designated "homeland," especially instead of post-WW2 Europe, population was bound to be a problem. Israel continues to grow today; many American nationals live in Israel most of the year. This is why Israelis settle in Palestinian lands much to the displeasure of the Palestinian residents.
Several of the bordering Arab states do have Palestinian areas, but only Jordan grants them full citizenship. In Lebanon, they are merely "refugees," and create a tense situation between that country's evenly divided Christian and Muslim factions (though both groups are Arabic).
I think the best solution is an independent Palestinian state made up of some of the pre-1967 lands, but Jerusalem should remain part of Israel and all areas of Jerusalem should be open to people of all faiths. I do not think any of this will happen while Ariel Sharon is p.m., especially since we know lately he is taking U.S. support for granted, perhaps because he and Israel could get along without it.
~U2Alabama