You story doesn't jive with the facts. The period between 1967 and the mid eighties was the least violent period in the west bank. Palestinians worked in Israel. Israelies shopped in the west bank. That period also had virtually no settlement activity in the west bank.
The extreme right in Israel sees settlement as the "proper" answer to Palestinian violence. That's another thread connecting these things. But the government that enables this was literally brought into power by Hamas.
When did Fatah cease armed combat exactly according to you? Are you talking about the Oslo agreements and the return of Arafat to Ramallah? I'm not following you (and I used to live in Israel during those times so I'm not making stuff up).
Hamas is also in the west bank so your other statement doesn't compute either.
Israel has dismantled settlements in Sinai, and in Gaza, as part of an agreement. During the Oslo process there was support in Israel to dismantle those as part of a peace agreement. The Palestinians didn't want peace (Arafat thought he'd be murdered if he makes peace with the Israelis and anyways Hamas and the PIJ wouldn't abide which makes the whole thing moot).