Israel did create the situation, Once it conquered the territories of Gaza and the West bank it now occupied a population of people. It could have integrated them into Israel as they have with the Israeli Arabs, or given the territory back to Egypt / Jordan after the war. But regardless, they now were the colonizers of a client population.
Palestinians are generally not interested in being annexed into Israel. In fact, that's probably what they oppose the most. Being consumed and assimilated is what the more religious and more conservative Muslims don't want. That would also be intolerable to Israelis. The very people who voted for Hamas, who carried out 10/7, who suicide-bomb cafes, should be granted citizenship? That's unrealistic. It would be like if the United States responded to 9/11 by making Afghanistan a state.
And giving back the land conquered during the Six Day War? That was more or less proposed in 2000, though most of it was actually going to a new Palestinian state. In Clinton's summit, Barak offered demolition of settlements, a right of return for Palestinians, half of Jerusalem and shared custody of the Temple Mount, and a return to the 1967 borders. Yasser Arafat, in my estimation fearing for his life if he made peace with Israel, rejected that.
In 2005, Israel withdrew from Gaza anyway, leaving a vacuum of power. In that vacuum, Hamas won an election a year later. This month, more or less as a direct result of giving Gazans more self-rule, a pogrom erupted from Gaza and killed over a thousand civilians. Surely you wouldn't say that's of Israel's design. And what would you have their response be? I can't imagine any country in the world that wouldn't respond militarily.
The living conditions of Palestinians are awful, terrible, inhumane. Especially in Gaza. But I don't see how or when Israel sat down and said "yes, let's create this." It's a consequence of a long series of events, and Israel is involved, but they didn't just sit down one day and design a two-tier society.