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I don't think that there can be evil in the world in the absence of a divine being. In a world of absolutes, good and evil can only be constructions of society.
However, assuming the truth of (1) and the existance of God, (2) and (3) aren't mutually exclusive. The whole thing with free will is that even though God could get rid of the evil, he wants to let humans make their own choices. Eve made that decision when she ate the apple; after that, God's hands were tied. He isn't a fan of the evil, but he realises that humans value free will more than they would want a utopian society, so here we are.
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Strewth
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