The “Palestinians” whom you think had been there for thousands of years were actually fairly new arrivals.
There was a Jewish/Israelite state in existence on the land from approximately 1200 BC through 70 AD, with a few minor interruptions. Further, there have been Jews living on the land continuously since 70 AD, there have been Jewish schools and shops and inhabitants without interrpution. There were no Arab-Moslems there until around 650 AD or thereabouts. When Mohammed visited Jerusalem, 600s AD, he preached his message to the Jews living there who rejected him; consequently, his later writings (the Koran) have some pretty vitriolic things to say about Jews. Not unlike Paul, whose message was earlier rejected by the Jews and who replied by saying some very nasty things about them.
Through the years of the Ottoman Empire, and its decline and collapse, there were always Jews in the area. The land became a British protectorate, and the Balfour Declaration promised the establishment of a Jewish state, around WWI times.
In 1948, the U.N. voted to “partition” the land, creating two states, a Jewish State and an Arab state (the term “Palestinian” was not then in use.) The surrounding Arab countries immediately launched a war, promising to “drive the Jews into the sea.” Their propoganda told the Arab inhabitants not to cooperate with the Jews, and they would be able to occupy the entire area. Purely objectively speaking: it was the Palestinians themselves and their surrounding Arab brethren who rejected the idea of a Palestinian state, back in 1948 when the U.N. offered it.
The Arabs who fled were put in refugee camps, where they have remained, in dreadful conditions (objective statement). They received almost nothing in aid from the Arab states responsible for their pitiable encampments, until after 1967, when they suddenly were called “Palestinians” and began terrorist attacks (not just on Israel, now – the reason the U.S. airports installed security systems is that the Palestinian terrorists, under Yassir Arafat, targetted any victim they could find.)
So, the term “Palestinian” has only been in use since 1967-ish. The notion that the State of Israel “displaced” the Palestinians is propoganda and hogwash. The Palestinians displaced themselves, by refusing to accept the U.N.'s two-state partition.