Despite this chance first confirmed encounter, the Europeans showed no interest in occupying or settling the islands at the time and it wasn't until the late 1800s when the Europeans arrived in force. The Spanish gained control over the islands and they became a part of the greater Spanish power in the region, stretching from the Philippines in the west to the Marshall Islands in the east.
Despite Spanish rule, Palau was never settled by the Spanish and colonization was never really an objective. Despite this, numerous Spanish missionaries arrived and quite quickly and successfully converted the people to Catholicism. Another reason Spanish influence made almost no impact was due to the fact that in 1898 Spain lost the Spanish-American War so Palau was sold to Germany as Spain needed money and tried to turn their attention to domestic affairs.
The Germans discovered phosphate and bauxite as well as the value in growing coconuts in Palau so began heavily mining the islands. They also altered the local Palauan culture to a great extent. Due to the mining on the islands, the Germans, unlike the Spanish, actually settled the islands to a significant degree. They also used the money from the mining to gain favor from local chiefs. In this way the Germans influenced Palauan culture through the chiefs as numerous practices were altered or abandoned altogether, including the loss of both tattooing and mengol.
In 1914 the Japanese declared war against the Germans for the duration of World War I and during the war the Japanese took control of Palau. The Japanese continued to alter or destroy the local culture as they continued the mining operations and encouraged immigration to work these mines. The Japanese and other people under their control immigrated to the islands in huge numbers, soon outnumbering the local Palauan population. They also turned the small town of Koror into a thriving economic hub trading the mined goods, while also setting up new industries.
The Japanese also understood the local political structure with local chiefs on the top of their villages, and the fact that these chiefs were given a great deal of respect by the people. The Japanese exploited this system and, like the Germans before them, financially supported the chiefs to gain their favor and influence. The Japanese also implemented social functions common in Japan and elsewhere in the world as education was mandated, but the children were forced to learn in Japanese.
Japanese control lasted until 1944 when the Allied forces attacked the Japanese at Palau during World War II (WWII). The battles in Palau were quite brutal as the Japanese sought to protect the industries they had built in Koror and the Americans needed to destroy the industries in the region as well as to move closer to Japan itself in order to end WWII.
During and after WWII Palau was destroyed in many ways. Obviously the bombings destroyed Koror as well as the economy and industry the Japanese built there. The mines destroyed much of the land and little land was left for farming or other forms of production. In other words the economy was destroyed. In an odd way though, the culture of the Palauans returned after the war. All ethnic Japanese returned to Japan and the ethnic Palauans regained control over their islands. With most industries destroyed, the people had little choice, but to return to their simple way of life of farming and fishing.
Of course other things didn't change and foreign occupation hurt the islands in numerous ways. Many historic traditions, from religion to tattooing, never returned and Catholicism is still the most dominant religion in the country today. The people also got used to a modern industrial society with new technology and the destruction of this struck a blow to the modernization of Palau.
With the end of WWII the Americans also took control over Palau, but did little to alter the people or the culture. More than anything the United States controlled their defense, foreign relations, and economy, but otherwise stayed fairly distant.
In 1979 Palau was given the opportunity to join the Federated States of Micronesia, but turned down the offer since the countries have very different cultures and languages. Palau, for the time, remained under the protection of the United States, although many people argued the future state of Palau as some sought to join the Federated States of Micronesia.
These arguments led to rising chaos and violence as the future direction of the country was debated. From 1979 to 1994 the people argued the future of their country as politicians and other leaders were often attacked for having views different from that of the attackers. It seemed the attacks came from all sides and against all sides as the people struggle to agree on the country's future.
It wasn't until 1994 that the people of Palau finally voted to declare independence from the United States, although they remain in a free association with the U.S., who continues to handle most of Palau's defense and some of their foreign affairs.