The reason is as you say: If someone gets too popular or a leadership looks too promising, Israel shoots them or compromises them. Fatah is seen as corrupt and liberal group too conflicted to create any meaningful movements for Palestinians. Hamas is seen as more sincere movement and has stronger support. They are primarily a social movement with a military wing. And so they are a stronger threat to Israel than Fatah could be. Fatah for its part is compromisable and pliable where as Hamas is a conservative strict disciplined movement with no hope for Israel to corrupt them.