The PLO was founded in 1964, with a charter calling for the total eradication of Israel. At that time, Israel did not have even one single settlement anywhere in Gaza or the West Bank.
The settlements are a scapegoat, not the actual reason for the conflict. The reason for the conflict is simply the fact that Muslims believe the entirety of the region should be Islamic, and that Jews have no right to any land in the Middle East, no matter where or how small it might be. This is an ideological conflict, not a land dispute. Until people start to come to that realization, the conflict will persist indefinitely.
They are an issue that needs to be worked out in the negotiation process when a Palestinian state is finally created, but the point is that they are not the cause of the conflict. The way people continually zero in on them and use them as the excuse any and every time Hamas or the Palestinian Authority does something wrong - is extremely misleading.
"Hamas is firing rockets? It's because of the settlements!"
"Palestinians are promoting violence and kidnappings? It's because of the settlements!"
"Mahmoud Abbas refuses to even come to the negotiating table? It's because of the settlements!"
"Official Palestinian television is teaching children that Jews are the descendants of apes and pigs, and that they should all be killed? It's because of the settlements!"
The word "settlements" has become a sort of get-out-of-jail-free card. No matter what happens or what Palestinians leaders, extremists, or terrorists do, someone will shout "settlements!" and that buzzword is supposed to make it all okay and shift all the blame to Israel. The problem is that it's simply untrue. The issue of settlements absolutely does need to be addressed, but it is a secondary issue. It is not the basis for the conflict. The basis for the conflict is the ideological rejection of Israel's very right to exist. Once the Palestinians decide to accept the fact that Israel isn't going anywhere, then the rest of the issues (like the settlements) will fall into place and be solved.