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The "whole" of Lebanon was not occupied, just the southern part. The PLO was created in an effort to get the international community to care about the Palestinians. Actually a brilliant move on Yasser Arafat's part. Prior to that, no one was really convinced of the notion of "Palestinians". Thanks to his efforts, he was able to "rally" his people and organize.
Again, the Palestinians were offered numerous land deals over the years but turned them down. Then they resorted to violence to get what they want. Moreover, other Middle East entities interfered with the Israeli-Palestinian process as well culminating in 3 different wars, each one started by one of the Arab states.
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