Maybe the Israeli's will decide they've gotten enough settlements, or that the occupation has gone on long enough?
The Gaza and South Lebanon withdrawals left bitter tastes in Israel's mouth - withdrawal means getting shot at. Unless there's a stable government in the West Bank with the ability to clamp down on factions that want to keep shooting at Israel, the Israelis aren't getting out. Look at Lebanon and Gaza. In Gaza Hamas runs the show, but now that they want to stop shooting at the Israelis so much they're facing the issue of the group Palestinian Islamic Jihad shooting at Israel... and Hamas is having trouble controlling them. Likewise the Lebanese government cannot control Hezbollah. Even if there were a Palestinian State established that isn't hostile to Israel, there's the issue of the country having the capacity to control factions within it.
And unlike with Lebanon and Gaza, the WB overlooks core Israeli population centers. There's much less room for error on the Israeli side.
And this is why Israel had no choice but to start planting settlements in the occupied territories? Maintaining the occupation without immediately beginning settlement programs, maintaining an occupation with an end-goal of creating an independent Palestine, would have been tantamount to national suicide?
Which Israelis? Which settlements? These are key questions.
The first settlements were a mix of people rebuilding places that had been destroyed in 1948 (Kfar Etzion for example) and people settling on hilltops that made for good observation posts because they expected another war soon. Hilltops, Jerusalem, and areas just over the border were where pretty much all WB settlements were until the 2000s, with the exception of Kiryat Arba by Hebron.
As for what changed in the 2000s, it was probably a mix of Netanyahu consolidating power and the negative lessons learned from Gaza and Lebanon withdrawal.
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As for what a Palestinian state would look like, I don't see why it wouldn't end up taken over by Israel following some Arab-Israeli war. Israel had a proto-state for a long time, was organized, disciplined, etc. Palestine didn't have much of a state at all. If there's a conflict, either Israel is destroyed or Israel occupies Palestine.
There's also likely going to be a lot of instability within Palestine. Palestinian National Consciousness as we understand it today only consolidated in the late 60s in response to the Zionists and Arab Occupiers. There'd likely be internal divisions between Greater Syria advocates, Pan-Arabists, and advocates for some kind of Palestine.
As for the issue of expulsion, Israel didn't outright expel people after 1967 OTL. Odds are Israel and Jordan will come up with an agreement to divvy up the place, assuming Abdullah doesn't get shot TTL. Palestine is defeated in a conflict, Jordan comes in to "protect" it, boundaries end up something like OTL's with Israel probably a bit bigger (Gaza, Judean Hills, etc).