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Justify it? Easy. Their leaders would rather keep them miserable and fighting to extinguish Israel than accept Israel as a neighbor and have the populace thrive. This has been the tragedy of the Palestinians since, oh, 1920 and the importation of western-style nationalism after the collapse of the Ottoman Empire. They'd rather keep their exterminationist dream alive, even if it means misery, than give up their hopes for a judenrein middle east. You're a nice person and can't understand that kind of hatred. Most westerners can't. But you're also lucky and don't have to deal with having it right next door.
If you look at Israeli public opinion, the sizable majority would walk away from the WB and Gaza in a millisecond and yes, abandon settlements, if they had any reason to think that would end the conflict - but they are convinced by the likes of Hamas and Hezbollah that it won't, because Hamas doesn't want to end it short of Israel disappearing. Again, a spot of research would bear this out without too much trouble. I think you owe Hamas the fundamental human respect of taking them at their word - they say they want to eliminate Israel, so I think we should believe them.
One other thing: yes, the Palis in Gaza live in squalor. But go have a look at the comments they made when they went to el-Arish and other Egyptian towns back when Hamas knocked down the wall at the Egyptian border and the Gazans went to Egypt to shop. I can dig up some of the articles if you like. The Gazans found that the non-occupied Egyptians lived in even more horrifying squalor than they did.
Comparing a first-world society like Israel to a third-world society like Gaza isn't a relevant comparison. Societies similar to the Palestinian Arabs produce squalor in abundance without being occupied or otherwise "oppressed"; what makes you think the Palestinians' living conditions wouldn't be squalid if the Israelis disappeared tomorrow?
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