I haven't heard a single good reason why they should not. After all Palestinians live in Israel; indeed many are Israeli citizens. Why are Jews not permitted to have settlements in the West Bank area. If they pay taxes and contribute to the economy they should be welcome. That the West Bank management doesn't want settlements is hardly a good reason. Indeed that is a good reason why there will not be a peace agreement and it should be a condition.
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8 arrested in riots between Palestinians, police near Temple Mount after noon prayer (Haaretz)