Frankly I don't think what happened 1000 years ago matters anyhow. What happened 40 years ago isn't that important either. This whole grudge settling thing just leads to ongoing violence.
Except that the Pallies are claiming the land as their "ancestral homeland", so history does lend credibility to the Jews' deed to the real estate, so to speak. You are correct that what is more important than history is what happens now. It is history in the making, the redrawing of borders the old-fashioned way; by conquest or defeat.
It does matter. Most groups like Hamas, Hezbollah, along with Arafat and many Arabic leaders consider "Palestine" to be historic Palestine, from the British seizure of land from the Ottomans, meaning that the land Israel is on (all of it, not just parts "occupied") is Palestine, and therefore the state of Israel in their view has no right to exist. Arafat met Arab leaders in Egypt in 1974 and formulated the "stages plan". First, get the Israelis out of disputed territory acquired in 1967. Then get the Israelis out of territory established in 1948, the Israeli war for Independence, ie, destroy Israel. They would be willing to live with the Jews as long as Jews lived in a state called Palestine under Islamic law. So, if you're an Israeli Jew, you have a lot to worry about a Palestinian state becoming a staging ground for attacks even worse than we're seeing now.