This was the first problem. The second problem was that by giving up the entire Sinai, it created a "little" Israel, instead of the spacious mini-empire that control of the Sinai gave. The third problem was that Israel would have to give up oil holdings - the Arabs and the Americans controlling the oil industry had used the Yom Kippur War as a cover to triple oil prices in 1973, which now meant that oil was a valuable asset. But all of these problems were dwarfed by something that the Israelis did not realize at all.
When the late Anwar al Sadat was able to win back the Sinai from the Israelis without firing a shot, he injected a tremendous amount of hope into the Arabs living under Israeli rule in Gaza, Judea and Samaria that they could eject the Israelis entirely. This hope was to result in the creation of large terrorist bases in refugee camps and Arab towns, and in the intifada of the late 1980's. This then leapfrogged into the development of Hamas and later HizbAllah.
The second event that occurred was the Lebanon War - the first Lebanon War. The original "Peace in Galilee" campaign was to advance to the Litani River and to stop, driving the El Fatah terrorists from the territory, and occupying it, thus preventing further terrorist attacks from Lebanon. But Security Minister Ariel Sharon turned the campaign into a full-scale invasion of Lebanon, as far as Beirut. This was the first time that the Jewish state had gone to war in a situation that was not an issue of self-defense against attack, and it appeared to many that an unspoken covenant had been broken, particularly after Security Minister Sharon ordered the IDF to advance beyond the Litani River.
The nature of the poison that had spilled into Israeli political life began to show itself at the Battle of Sultan Yakub, where a tank division of largely religious soldiers was allowed to advance into an ambush by their commanders, Colonel Ehud Barak and Amram Mitzna, both secular Jews and later major figures in the Labor Party. Twenty three soldiers were killed in that ambush and three soldiers went missing, including Zechariah Baumel (whose father, Yona, is on the board of the Root & Branch Association, Ltd. in Jerusalem).
But the real problem with Sharon's invasion of Lebanon was that his goal - the destruction of El Fatah as fighting force - thwarted by the United States government, which arranged for Arafat, along with people like Mahmoud Abbas, to live, and to leave for Tunis. This rendered the Israeli invasion worthless and created, for the first time, a real element of questioning the validity of the actions of the IDF among Israelis. This led to an acceptance among some of the elites here of something called "post-Zionism", which revises the history of the country to present it as though we Jews who have sought to re-settle our home as a people are colonial villains with no rights, while the Arabs, many of whom immigrated here from Iraq or Syria during the period of British rule with their encouragement, had rights that extended centuries back.