It sucks but this isn't new. The wiki page for Canadian Passport also notes other countries which often aren't listed, including: Israel, Hong Kong, Macau, and Taiwan.

The reason why is because other countries might not accept a passport with those countries listed as place of birth. China has stated they will deny entry to anyone with Hong Kong, Macau, or Taiwan listed as a country on their passport. So you can put Palestine as the place of birth on your passport, but you might not be able to travel to any countries which don't recognize it as a country.

For Israel and Palestine, it depends on your year of birth and city of birth. Certain years and certain cities are accepted. Tel Aviv, Isreal is allowed Jerusalem, Isreal is not. Jerusalem, Palestine is allowed if you were born before Isreal was created and it was still a British territory.

International geopolitics is complicated. Canada doesn't want its passport holders to be banned from entry into other countries over wording in the passport.