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At the time of World War I the area was ruled by the Turkish Ottoman empire. Turkish control ended when Arab forces backed by Britain drove out the Ottomans.
Britain occupied the region at the end of the war in 1918 and was assigned as the mandatory power by the League of Nations on 25 April 1920.
During this period of change, three key pledges were made.
In 1916 the British Commissioner in Egypt, Sir Henry McMahon, had promised the Arab leadership post-war independence for former Ottoman Arab provinces.
However, at the same time, the secret Sykes-Picot Agreement between war victors, Britain and France, divided the region under their joint control.
Then in 1917, the British Foreign Minister Arthur Balfour committed Britain to work towards “the establishment in Palestine of a national home for the Jewish people”, in a letter to leading Zionist Lord Rothschild. It became known as the Balfour Declaration.
Britain never really had any intention of handing over independance to the Arab leadership, but bear in mind that this was at a time when secret treaties and double dealing were dominant in European international politics and that France also pushed for their part of the region.
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Britain, which had ruled Palestine since 1920, handed over responsibility for solving the Zionist-Arab problem to the UN in 1947.
The territory was plagued with chronic unrest pitting native Arabs against Jewish immigrants (who now made up about a third the population, owning about 6% of the land). The situation had become more critical with the displacement of hundreds of thousands of Jews fleeing the Nazi persecution in Europe. Some six million Jews were killed in the Holocaust during World War II.
The UN set up a special committee which recommended splitting the territory into separate Jewish and Palestinian states. Palestinian representatives, known as the Arab Higher Committee, rejected the proposal; their counterparts in the Jewish Agency accepted it.
The partition plan gave 56.47% of Palestine to the Jewish state and 43.53% to the Arab state, with an international enclave around Jerusalem. On 29 November 1947, 33 countries of the UN General Assembly voted for partition, 13 voted against and 10 abstained. The plan, which was rejected by the Palestinians, was never implemented.
Britain announced its intention to terminate its Palestine mandate on 15 May 1948 but hostilities broke out before the date arrived.
The death of British soldiers in the conflict made the continuing presence in Palestine deeply unpopular in Britain. In addition, the British resented American pressure to allow in more Jewish refugees - a sign of growing US suport for Zionism.
Both Arab and Jewish sides prepared for the coming confrontation by mobilising forces. The first "clearing" operations were conducted against Palestinian villages by Jewish forces in December.
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Six-Day War: Before the war
From 1948 to 1967, the West Bank, including East Jerusalem, was ruled by Jordan. During this period, the Gaza Strip was under Egyptian military administration. Israeli troops captured Egypt's Sinai peninsula during the 1956 British, French and Israeli military campaign in response to the nationalisation of the Suez Canal. The Israelis subsequently withdrew and were replaced with a UN force. In 1967, Egypt ordered the UN troops out and blocked Israeli shipping routes - adding to already high levels of tension between Israel and its neighbours.
Six-Day War: After the war
In a pre-emptive attack on Egypt that drew Syria and Jordan into a regional war in 1967, Israel made massive territorial gains capturing the West Bank, Gaza Strip, Golan Heights and the Sinai Peninsula up to the Suez Canal. The principle of land-for-peace that has formed the basis of Arab-Israeli negotiations is based on Israel giving up land won in the 1967 war in return for peace deals recognising Israeli borders and its right to security. The Sinai Peninsula was returned to Egypt as part of the 1979 peace deal with Israel.
I think the Israeli's see the land they have gained in the 1967 war as being their best bargaining chip and rely on it in all negotiations, they are unlikely to give it away easily.
Another problem is that of East Jerusalem which has many of the holiest sites for both religions, under pre 1967 borders it would be part of Palestine and the Palestinians (like the Israelis) wish to make it part of their capital. I think it must remain an international city as the UN declared it to be, however, access to the religious sites it contains and the inevitable turmoil that will be present in the area make East Jerusalem one of the worst long term problems in the peace process (IMO).
Edit: Source for quotes BBC news website.
