The Six Day War and Arab rejectionism

The Arab-Israeli conflict persisted as Arab countries refused to accept the existence of Israel and instigated a boycott of Israel, while they continued to threaten with a war of destruction. (There were some talks, but the Arab states all demanded both the return of the refugees and also parts of Israel in return for just non belligerence). They also founded Palestinian resistance groups which carried out terrorist attacks in Israel, like Fatah in Syria in 1959 (under the guidance of Yasser Arafat), and the PLO in Egypt in 1964.
In May of 1967, the conflict escalated as Egypt closed the Straits of Tiran for Israeli shipping, sent home the UN peace keeping force stationed in the Sinai, and issued bellicose statements against Israel. It formed a defense union with Syria, Jordan and Iraq and stationed a large number of troops along the Israeli border. After diplomatic efforts to solve the crisis failed, Israel attacked in June 1967 and conquered the Gaza Strip and the Sinai Desert from Egypt, the Golan Heights from Syria and the West Bank and East Jerusalem from Jordan (see map below). Initially Israel was willing to return most of these territories in exchange for peace, but the Arab countries refused to negotiate peace and repeated their goal of destroying Israel at the Khartoum conference.

The Six Day War brought one million Palestinians under Israeli rule. Israelis were divided over the question what to do with the West Bank, and a new religious-nationalistic movement, Gush Emunim, emerged, that pushed for settling these areas.

After 1967 the focus of the Palestinian resistance shifted to liberating the West Bank and the Gaza Strip as a first step to the liberation of entire Palestine. The Arab Palestinians started to manifest themselves as a people and to demand an independent state. East Jerusalem, reunited with West Jerusalem and proclaimed Israel's indivisible capital in 1980, but also claimed by the Palestinians as their capital, became a core issue for both sides in the conflict. The division of Jerusalem with its holy places is the second large obstacle for a solution to the Arab-Israeli conflict.