I'm thinking we have a colossal failure to communicate. Israel belongs to Israel and primarily the Jews who are still the majority of the population. Any lands which they control but have not annexed can rightfully be called occupied territory.
I believe Israel would like to have a defined eastern border, and it won't look like the 1967 line. The problem is that they can't find anyone to negotiate with who wants them to even exist at all.
“The Geneva Convention prohibits the construction of Jewish settlements in occupied territories.”
FACT
The Fourth Geneva Convention prohibits the forcible transfer of people of one state to the territory of another state that it has occupied as a result of a war. The intention was to insure that local populations who came under occupation would not be forced to move. This is in no way relevant to the settlement issue. Jews are not being forced to go to the West Bank and Gaza Strip; on the contrary, they are voluntarily moving back to places where they, or their ancestors, once lived before being expelled by others. In addition, those territories never legally belonged to either Jordan or Egypt, and certainly not to the Palestinians, who were never the sovereign authority in any part of Palestine. "The Jewish right of settlement in the area is equivalent in every way to the right of the local population to live there," according to Professor Eugene Rostow, former Undersecretary of State for Political Affairs.4
As a matter of policy, moreover, Israel does not requisition private land for the establishment of settlements. Housing construction is allowed on private land only after determining that no private rights will be violated. The settlements also do not displace Arabs living in the territories. The media sometimes gives the impression that for every Jew who moves to the West Bank, several hundred Palestinians are forced to leave. The truth is that the vast majority of settlements have been built in uninhabited areas and even the handful established in or near Arab towns did not force any Palestinians to leave.
“Settlements in various parts of the so-called occupied area... [were] the result of a war which they [the Israelis] won.”
— U.S. Defense Secretary, Donald Rumsfeld
4a
(Mitchell G. Bard, "Myths & Facts Online: Settlements")