The Settlement question can be discussed from both a theological and legal/rational perspective.
1) The Land of Israel was given to the Jewish people in an everlasting covenant by God.
Genesis 17:7-8 "And I will establish My covenant between Me and you (Abram) and your seed after you throughout their generations for an everlasting covenant to be God to you, and to your seed after you. And I will give to you, and to your seed after you, the Land of you sojournings, ALL THE LAND OF CANAAN, FOR AN EVERLASTING POSSESSION, AND I WILL BE THEIR GOD."
Gen. 35:12 - " And the land which I gave to Abraham and Isaac, I will give it to you (Jacob), And I will give the land to your descendants after you."
The West Bank and Gaza are unquestionably part of the Land promised to Abraham, Isaac and Jacob and their descendants.
2) One of the curses of the Mosaic law was expulsion from the Land as a punishment for disobedience, but it is always clear that the exile is a temporary punishment, that does not contradict the everlasting covenant made with Abraham, Isaac and Jacob.
3) Ezekiel 36:24-28 talks about a future restoration:
"For I will take you from the nations, gather you from all the lands, and bring you into your own land. Then I will sprinkle clean water on you, and you will be clean; I will cleanse you from all your filthiness and from all your idols. Moreover, I will give you a new heart and put a new spirit within you; and I will remove the heart of stone from your flesh and give you a heart of flesh. And I will put My Spirit within you and cause you to walk in My statutes, and you will be careful to observe My ordinances. And you will live in the land that I gave to your forefathers; so you will be my people and I will be your God."
4) The key here is that the restoration to the land happens first, followed by the promised spiritual restoration. Many Christians, including ourselves, believe that the first part of this prophecy was fulfilled in 1918, 1948 and 1967, and are waiting for the continuation of the fulfillment.
The promises of spiritual restoration for the Jewish people in Ezekiel 36 can be seen as parallel to Paul's statement in Rom. 11: "all Israel shall be saved .... these [the Jews] also now have been disobedient, in order that because of the mercy shown to you [the Gentiles] they also may now be shown mercy". (vs. 26 and 31). Their acceptance of God's way of salvation will be "life from the dead" (vs. 15).
This argument hinges on the belief that the establishment of the State of Israel and the capture of the territories in 1967 were part of God's plan of physical restoration of the Jewish people to the land as a prerequisite for God's next stage: their spiritual restoration.
Some ultra-Orthodox Jews do not accept this view of recent history, claiming God would not use a secular Zionist movement as His tool. Many Arab Christians who cite the hardships suffered by the Arab residents of the land during the Arab-Jewish conflict of the past century are also unable to accept it as part of God's plan.
Even more common are Christians who deny that there is ever to be a promised physical and spiritual restoration of Israel. All the promises are now spiritualized and given to the Church. ("Replacement Theology"). These Christians have lined up universally against a Jewish presence in the West Bank and Gaza, because they have no theological underpinning for it.
If however, one believes that God has used the events of 1948 and 1967 to restore the Land of Promise to Jewish sovereignty, the settlements become a natural process of stepping out in faith into God's promises.
Legal / Rational Perspective:
1) The land has changed sovereigns repeatedly since the fall of the Northern Kingdom in 722 BC. Do any of these sovereigns have legitimate "rights"? If we take Babylon as our example of a God-ordained conqueror ... we might argue that each sovereign was God-ordained in its period.
Thus the Ottomans took the land in 1516 and the British in 1917. The British received League of Nations approval to continue to govern until the peoples of the land could govern themselves. (Who gave the League of Nations the right to decide who should rule the Middle East? Only the British military conquest caused the question to come under the League's jurisdiction)
The UN partitioned the land between Jews and Arabs in 1947, but the Arab leadership rejected the partition and chose to settle the conflict by war. Now 50 years later there is an attempt to revive the partition plan as the legitimate international status quo: quite a questionable basis for legitimacy.
In the interim, of course, Jordan occupied, with no legal claim, the West Bank, while Egypt occupied Gaza (1948-1967). During these 19 years neither country offered independence to the local population (now called Palestinians).
Israel took the areas in a defensive war in 1967. Prior to the war they repeatedly requested from King Husein of Jordan to stay out of the war. They promised not to attack any of the territory he then ruled, if only he would not open a third front, in addition to the Egyptian and Syrian fronts which the Israelis already faced.
In 1978 (Camp David) Egypt gave up claims to Gaza, and in 1988 Jordan relinquished all its claims on the West Bank.In light of the above, Israel becomes the successor in a territorial vacuum, rather than an "ocuupier" of the land of another sovereign state. Therefore, settlements cannot be considered illegal. By international law the territories should be seen as unallocated parts of the Palestine Mandate, within which, according to the Balfour Declaration of 1918, Jewish sovereignty was to prevail.
2) There have always been Jewish settlements in these areas. Hebron had a prospering Jewish community until the slaughter during the Arab riots of 1929. The Jewish inhabitants of the Etzion Bloc in Judea waere forcibly expelled by Jordan in 1948. Even Kfar Darom, the much-attacked Jewish settlement in the Gaza Strip, was purchases by Jews and settled as far back as 1936. Since 1967 Jews resettled these communities, plus other State land designated by the government to be strategically important (Gilo, Ramot, Maale Adumim, Ariel, etc). Arab inhabitants are not being deported to make way for Jewish settlement. Therefore Israel does not contravene the controversial Ar. 49 of the 1949 Geneva Convention IV.
3) None of the above negates the Palestinian right to private land ownership, political representation of their choosing under Israeli sovereignty, and just and dignified treatment in their day-to-day interaction with Israelis. Some Israelis have a long way to go in righting arrogant attitudes toward their Arab neighbors.
We should look to Ezekiel's vision for the time of Israel's restoration: "And it will come about that you shall divide it [the land] by lot for an inheritance among yourselves and among the aliens who stay in your midst, who bring forth sons in your midst. And they shall be to you as the native-born among the sons of Israel; they shall be allotted an inheritance with you among the tribes of Israel. And it will come about that in the tribe with which the alien stays, there you shall give him his inheritance," declares the Lord God. (Ez. 47:22,23).