The main problem is the lack of clear legal status for the West Bank. Either Israel is occupying the West Bank or it is not. If it is occupying the West Bank, then no land there is "Israeli state land' and Israel has no right to allocate any land there to its citizens. If Israel is not occupying the West Bank then it either it should not be there at all or it should annex it and apply the rule of law uniformly, that is offer Israeli citizenship to Palestinians living there. While this side could be argued (i.e. Israel could claim ownership via the right of conquest in a defensive war or the right for Jews to settle there based on the UN charter specifically stating that it should not be construed as abrogating the provisions of earlier mandates (such as the British Mandate for Palestine, which gave Jews the right to settle anywhere in the Mandate, providing the rights of Arabs were respected), it is debatable whether it is a wise strategy. Multi-ethnic states where the ethnic groups are nearly the same size do not seem to fair well in our neighborhood.
Donald Trump: Israeli settlement construction in West Bank should 'keep going' (Haaretz)