The Jewish diaspora happened, but that doesn't mean that all Jews left Palestine, no. What it means is that the Jews lost control of it. It's important to Jews because they believe that land was promised to them by their god. There's a kind of sanctity to it, and to the Jewish political state controlling it. Before the Babylonian exile there was a belief that the Jewish people would live in that land perpetually, ruled by a descendant of David. It really messed up their religion in a fundamental way when they kept getting exiled.
