There is nothing undemocratic about this at all. This is what international law mandates. Israel is prohibited from annexing this territory by said international law. When Israel annexed other occupied territory and gave residents rights (The Golan Heights) the international community refused to accept that.
You can ask why these territories are in this status for this length of time. Part of the reason is that the country it was occupied from, Jordan, does not want it back. Another part is that the Palestinians that live there don't really want this resolved either (at least some really large portion of them). Another part are other external interests that don't want to see this resolved.