The occupation of the West Bank and Gaza Strip brought under Israeli rule a large part of the Palestinian people. If for a brief moment after the war innovative policy options were entertained – such as the Israeli government's secret decision, on June 19, 1967, to consent to withdraw to the Egyptian and Syrian international borders in return for a peace treaty; or Allon's suggestion, on August 19, 1967, to establish in the West Bank a miniature sovereign Palestinian state tied to Israel by a treaty of mutual defense and a common market, a plan supported by the high military command as well – these passed away rather rapidly. In their stead, the old colonial logic gradually reasserted itself, as we saw in the previous chapter.

The place of the Palestinian population of the occupied territories (OT) in Israel's incorporation regime was determined by the contradiction inherent in the desire to annex some or all of these territories without making their residents citizens of Israel. The slowly evolving solution to this dilemma became “creeping annexation” through Jewish settlement and the partial extension of Israeli institutions into the OT.

Unlike the Palestinians within Israel's 1948 borders, who had been granted civil and political rights as individuals, those on the West Bank and Gaza were left in legal limbo. They were not integrated into the state of Israel, but remained under a military government that, on its part, accepted only partially the international legal framework that is supposed to guide belligerent occupation.