Middle Eastern peace talks, which were resumed between representatives of the State of Israel and State of Palestine at the end of July 2013 again sparked hopes that conflict, which roots go back to the beginning of the 20th century, has a chance for a peaceful solution. This optimism was tempered, however, by previous experiences, when talks ended without bringing expected results and brought only disappointment for both sides of the conflict. One of the biggest obstacles to reaching an agreement is the presence of Israeli settlements in the Occupied Territories, which number and size undermine the possibility of establishment of a sovereign and territorially homogeneous Palestinian State. The aim of the article is to analyse the Israeli settlement policy in the Occupied Territories from historical perspective, allowing to trace its development during the periods of leftist and rightist governments, and also in the context of the Middle Eastern Peace Process and international law. Special attention will be given to the ideological base of Israeli policy towards occupied territories and how ideological changes in Israeli society can affect prospect for peace.