First some history, and you, apparently, have not gone back far enough. In the late Roman era, a decimated Jewish community in the area managed a revival. For three centuries, the towns and farms extended as far as the coastal plain. During this period, the Palestinian Talmud was compiled. Moreover, the Jewish population sustained its growth well beyond the Arab conquest in the 7th century, and even under the Seljuk Turks, reached 300,000 inhabitants by the year 1000. The promising interlude ended abruptly and quite terribly with the arrival of the Crusaders. The butchery of Jews was so extensive under Christian rule, that in 1169, only a thousand families were still alive.
Eighteen years later, however, Saladin, sultan of Egypt, won a crushing victory over the Latin Kingdoms and began the process that ultimately evicted the last of the Crusaders a century later. Subsequently, under a tolerant Moslem regime, pilgrimages of Jews from overseas augmented the tiny Palestinian remnant. The Spanish expulsion decree in 1492, propelled tens of thousands of Shephardim Jews into all corners of the Mediterranen world, and not less than 8,000 into Palestine, and their arrival corresponded with the Ottoman conquest of the Levant (1517), and in its first century the rule of the Turks proved benign. After this first century, however, the Turks made life difficult for Jews and Christians alike. By 1837, no more than 6,000 Jews lived in the four holy cities.
It was around then, that the concept of Zionism took hold. Due to oppression in Russia and elsewhere in Europe, 25,000 Jews entered Palestine from 1882-1903. Several large tracts were purchased by the Chovevei Zion (formerly known as the Odessa Committee), which were then resold to settlers or land companies. However, the sheer hardships of farming in Palestine, a series of lethal malaria and typhoid epidemics, and the endless legal obstacles interposed by the Ottoman authorities, proved too heavy a burden, and many of the settlers emigrated for Europe.
Born in 1860, the son of an affluent banking family, Theodore Herzl became an internationally known author and reporter by 1895. He was also preoccupied with the Jewish question. He was driven to build a Jewish nation, and to that end mass propaganda was needed. He also learned much of parliamentary techniques during his years covering the French Chamber of Deputies. The First Zionist Organization was formed. By 1923, Haifa had become a glittering international city and a model of technological advancement. A race of Jewish fugitives had been transformed by orderly Zionist direction into a nation of successful farmers, industrialists, and businessmen.
Up to this point in history, there was no hatred of the Jews by the Arabs in the area. However, the Jews pushed for a state of their own, which was initially agreed to by England, who had the Mandate controlling the area after WWI, in the so-called “White Paper.” There, actually, have been several White Papers and England tried to back away from their commitment, but due to the Jewish freedom fighters, right after WWII, England gave up and allowed the partition of the land for two states: Israel and Palestine. The Arabs did not want a Jewish state in the region, and that was the start of the problems. After the UN allowed the partition, Israel declared the land set aside to it by the UN as a state, but the adjacent Arab countries thought they could push the Jews to the Sea (which, of course, never happened). The adjoining countries fought several wars against Israel, culminating in the 1972 Yom Kippur war, but the war in 1967 is the war in which Israel took possession of the “occupied” area. The PA, which was formed right after that war, believe all the land of Israel is occupied territory.
So, the short answer is that the hatred of the Jews by the Arabs was caused by the fact that the Jews wanted to live in a Jewish state. After the initial attack against Israel, in 1948, almost a million Arabs fled, in what is known as “refugee camps,” but are actually quite developed areas now. Not to get into GD area, some claim that Jews forced many Arabs to leave the state prior to the first war against it by terrorist activities against them. In any event, the majority of the refugees abandoned their homes in Israel during the first war’s brief intermission, afraid of being caught in the middle of the fireworks. Many of the Palestine leaders had left long before that. About 15% of Israel is still occupied by Arabs (the Israeli Arabs). Many of those are in Haifa, which is a city wherein many Jews and Arabs live together. Many Arabs now wish for peace and a state of their own (which they could’ve had in 1948), but the terrorism against Israel by Arafat’s henchmen (various factions of the PA) has caused Israel to use forceful tactics in self-defense. So, you have this chain reaction: Arafat’s henchmen attack innocent Israelis and the Israeli military reacts, as any state would. As long as Israel has to suffer terrorism, there never will be peace, and many Arabs realize this now, but Arafat is in control.