They are playing the really long game with settlements. The 1967 war showed weaknesses in israels defence and the expanded territory helps shore that up. Given israels success on the battlefield they got themselves more chips at the poker table.
I don't understand what this long game is all about. They've already got 600,000 people on the West Bank. The more people they have there the more unlikely there can ever be a two-state solution. Do they want to simply annex the West Bank and move hundreds of thousands or millions more there? Right now there are about 6.5 million Jews in Israel. They're already facing demographic threats from the growing Muslim/Arab population which is now at nearly 2 million and growing much faster than Israeli Jews. There are approximately six million Arabs in the West Bank. Absorbing them would put Jews in a minority, which would mean no more Jewish state.
That means they would either have to become a true apartheid state, and not let the Arabs vote or have representation in parliament, or expel them all. I don't see any way they can survive the former with any kind of international support, and I don't see how they could possibly succeed at the latter.
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