It’s the same reason why community organizers want to keep POCs in he inner city: by keeping them all together, they keep them dependent, keep them from moving about the country and finding successes they can be proud of. They keep them as poster children. They keep them as their mascots.
It's worse than that by several orders of magnitude.
By keeping the Palestinian refugees as stateless persons, and refusing them the ability to migrate to other Arab nations, they keep them as a servant class. They give the Palestinian refugees, some of them four generations living in Syria, or Jordan, or Egypt/Gaza, no choice but to resent and hate the Jews.
On the other hand... this forced prison state has been going on for so long that if they were to tomorrow become citizens of the nations where they were born, the refugees in Lebanon would immediately overwhelm the government of Lebanon, and probably similarly disrupt the Syrian, Jordanian, and Egyptian governments, turning some of them into terror states, or at least creating newly enhanced terror enclaves within those nations.
I was going to make a similar comment but you said it so much better than I could have...
They keep them as their mascots.
Very true.
And also keep them voting en block in majority POC districts.