It is occupied — the West Bank by Jordan and Gaza by EgyptI think what you mean to say here is that these were the last modern states to hold recognized sovereignty over the respective territories. But of course they exercised any control over those places since 1967.
Historically, these areas were never considered Palestinian
Correct if, again, one is thinking in terms of a sovereign Palestine state. However there has been nonetheless distinct Palestinian identity in formation since the 19th century, or possibly further depending on whom you ask (even if it didn't align exactly with European models for such at the time).
Given this background, many Israelis believe that the Palestinian struggle against Israel has not primarily been about establishing an independent nation to coexist peacefully alongside Israel. Rather, they view the aim of the struggle as attempting to dismantle Israel as a Jewish state by systematically challenging its historical and political legitimacy.
This is pretty good summation of the mainstream position within Israel society. A corresponding view of the current mainstream Palestinian position might go like this:
Given this background, many Palestinians believe that current Israeli policy is not about establishing its own security (and certainly not within 1967 borders), but about the continuing removal from, and/or permanent subjugation of the Palestinian people within the Occupied Territories. In particular, they see absolutely no interest in a 2SS solution on the Israeli side. They therefore see the dismantling of the Israeli state not just as the only viable alternative to their own destruction, but as a historical inevitability.
That seems to be what it comes down to. The question is -- where to go from here.