Your argument is accurate. Israel has not violated interbational law by settling in the West Bank and a return to 67 borders is extremely dangerous for Israel. Nontheless sometimes you have to choose between bad and worst alternatives. Israel won't be able to occupy forever. It will have to annex or withdraw. The day the PA will drop out the demand for a palestinian state and will start fighting for civic and political rights within a single state, Israel will be much more complicated in political and security terms, than with a free palestinian state. You have to think in that alternative, which is an option that most Israelies wont be able to accept.
More than 100,000 asylum seekers entered Germany in August, official says (Reuters)
from the article: Olmert's negotiator: Full Mideast peace impossible