The way I understand it (completely personal subjective impressions):
1) Peretz made the deal with Otzma "pre-emptively", before coming to an agreement with Smotrich and his Ichud Leumi faction, which basically everyone in both Ichud Leumi and Bayit Hayehudi would have, and did, consider to be the more "natural" alliance.
2) The impression of many was that this pre-emptive deal with Otzma was specifically meant to put pressure, or perhaps even to spite, Smotrich, who was insisting on an official vote (either in a general primary or in the party central committee) to establish the head of the unified party as part of his terms for the unification. This was construed as Peretz' fear of the more popular Smotrich winning such a vote.
3) Furthermore, this was also seen as stubborn refusal to relent on the historic, yet increasingly unpopular, position of Bayit HaYehudi nee Mafdal, opposing any form of voting to establish the party head or Knesset list, despite the clearly changed sentiment of many party members and voters.
4) At the same time, there were rumors (or more) of internal fighting within the Bayit HaYehudi ranks, particularly between Peretz and Moti Yogev, which apparently led to almost violence at the committee meeting meant to ratify the unificiation. The deal with Otzma may have been seen as political maneuvering against Yogev as well. Yogev ultimately withdrew his candidacy following the final deal with Bennett, stating that Peretz was not trustworthy.
5) The deal with Otzma also was criticized within Bayit HaYehudi for giving Otzma unduly high places on the list, pushing out "more worthy" Bayit HaYehudi candidates, most notably MK Idit Silman, who was the only female in a "realistic" position, thus also leaving Bayit HaYehudi with no realistic female candidates.
6) On the other side, Bennett was criticized for taking such a hard-line stance on Otzma's inclusion in a unified party, when he seemed just fine with the idea not six months ago in the preparations for the previous elections. This forced Peretz to make an impossible choice between keeping his signed promises, and doing what Netanyahu at least was telling him was the right thing to do.
7) Of course, such a last-minute "betrayal" by Peretz could not have been better calculated to ensure that Otzma would run independently (knowing from experience that Ben-Gvir would never back down anyway), and probably garner more votes for its black hole than even last election, thereby proving more damaging to the Right-wing bloc than any other strategy. Peretz should possibly have thought of that before making the deal.
8) And, frankly on the personal level, there is a serious amount of shared blame for both Bennett, Shaked and Peretz, as well as Ben-Gvir, for refusing yet again to seriously think about the results of the two (!) elections in the past year. They should have all swallowed their pride, sat down all together like adults in a big room, as equals (yes, even Ben-Gvir), and discussed the ways to form a single unified party. This foolish devotion to this or that poll which indicate that this or that group of voters will jump ship if Otzma is included or not included is what leads to these wishy-washy reversals that ultimately drive way more voters away and do the most damage.
9) What hurts the most is that I still can't personally justify voting for anyone other than the unified Right list at this point, despite how annoying and immature everyone seems to be. No other party is any better nor will adequately represent my beliefs and interests...

Just my take, hope it helps.

thanks. that is a lot of background I wasn't taking into account

I still don't know who I will vote for, but any party which feels that Otzma is a legitimate partner is not a candidate for my vote.

Otzma is a party headed by a terrorist-sympathizer who had a picture of a terrorist hanging on the wall of his house. His big compromise was that he was prepared to take down the picture. In my opinion, Bibi Netanyahu is no longer fit to be Prime Minister as he tried to bring a terrorist supporter into the mainstream. The deal the Rav Peretz made with Otzma means that Bayit Hayehudi should no longer be considered a representative of anyone who is opposed to terrorism.

Bennet was the only politician on the right prepared to draw a red line and say we cannot have terrorist-supporters in the alliance. The fact that no other leaders in the right-Wing block were prepared to stand up against a terrorist supporter is a tragic reflection on how far the Right-Wing block has fallen.

As I said, I have no idea who I will vote for, depends on how much Benet distances himself from both Bibi and Ben Gvir over the next few weeks. Otherwise I may have to hold my nose and vote for Gantz in the hope that he can form a government which is in power long enough for Likud to dump Bibi and get their house back in order.

Bennett refused to run with anyone who had up a picture of a terrorist - namely Ben Gvir who had up a picture of Baruch Goldstein. Ben Gvir took down the picture and Bennett still refused to run with him. I'm sure he had no problem running with people who supported Yitzchak Rabin, who gave the order to attack the Altalena. And many people consider Baruch Goldstein to have been a Tzadik. Up until he shot in the Mosque he was the doctor responsible for patching people up after terror attacks, and at that time they were happening VERY often. After the Mosque shooting aside from one person who was killed that afternoon there was quiet for 26 days. And it's amazing that all these years later everyone remembers the 29 people killed in a Mosque. How many remember the 13 killed Purim 2 years later?