Of course it is a sin to steal land in Israel for many reasons and there is no denying that! Anyone who does it is doing the wrong thing and it is not what God wants Jews to do now, as almost all Rabbis teach.
Even though it may not technically be stealing (because it is God-given Jewish land, and we never gave up hope to return to it after being driven out by the Romans [losing hope to reclaim your land doesn't make a difference in Jewish law anyway for the true owner always retains the rights to the land--see Shulchan Aruch CM 373]), being that the Messiah has not come yet, we can not conquer our land by force (through a war lead by the Jewish King [some hold he can be a different form of leader/government], unless it is a war in self-defense) if it is understood by the world as "stealing," because if the world honestly treats something as stealing then Jewish law treats it as stealing; we reflect the world's moral view (if it is actually moral) measure for measure (See R Reuven Margaliyot's Mishpitei Ger Toshav starting from this page where he discusses Jewish law ruling like Gentile law. This can flow from the concept of dina demalchusa dina, or the general Noahide dinim. I view it as a logical midda kenneged midda type of rule as that is how Hashem rules the world, meaning, since it can't be that international laws are more moral than Hashem's Torah will, He wants Jews to follow the derech haaretz under the umbrella of the Torah instruction to "do what is straight and good," which includes doing what is truly ethical in the eyes of both God and man (see Tosefta Shkalim 3:2 quoting Rabbi Akiva and Rabbi Yishmael) even if not explicitly commanded to do so, and to avoid the chillul Hashem when people judge Jews as being immoral and dishonest for taking land from innocent Palestinians).
Further, although the government may have the halachik power to take land in their jurisdiction and it is not technically stealing (called hefker beth din, dina dimalchuta, or other concepts; yet a government which follows the Torah may be necessary to have these halachik rights, as opposed to a secular government), an individual does not have the right to take the law into his own hands and 'conquer' the land from the inhabitants because that is actually stealing from people who have ownership the land, nor can individuals build in ways that have a detrimental effect on the previous right of passage that the peaceful inhabitants had established before this person moved in.
Anyway, taking of land can put Jews in great danger, so we are forbidden to do it even if you disagree with this understanding of how Jewish law works.
Aside, I don't know where people are getting this idea that you are allowed steal land when it is clearly forbidden as stealing to even trespass on someone's land, let alone take it from them by force, as is written in the Shulchan Aruch CM 376 (i.e. Code of Jewish Law). You can make all the hair-splitting distinctions you want, but that doesn't change the halacha nor the fact that it is forbidden according to all opinions (for one reason or the other).
When the Messiah comes, we hope that the entire world will recognize his stature (or at least those living in Palestine), so that we will not have to wage war to retake our land. Until then, many Rabbis support 'land for peace' initiatives, because we will get all of Israel back in the future anyway. At that time, Palestinians will live in a moral, just, holy, peaceful, and blessed Jewish society (it is assumed we will have a king too as Rambam says throughout that chapter), and they will be honored to be part of the glorious Jewish state.
As far as I know, the peaceful Palestinians at that time will be allowed to live in Israel. It is just that the government of Israel will maintain control of the land. I do not know the details as to who exactly owns that land and what will happen at Jubilee when land returns to its proper owner. It may be that when the lands will be divided by lot, as spelled out in the last chapters of Ezekiel, the moral non-Jews who live in the land will be able to stay in their towns (although the government will have power over the land as it has power over all land according to the halachik details) and therefore they will not ever have to leave at Jubilee because they own it (or because the state owns it, so the state will symbolically return it to the owners every 50 years). It is possible that even Jews will have to be transferred throughout the land to live within their own tribe's borders. I have to do more research on these matters.