They were not allowed to have a military force. They had to give up some of their territory (a major cause of WWII), and they were forced to pay reparations for the damages to other countries and for their war costs (another cause of WWII). I am not sure why the holocaust would be avoidable other than Hitler felt that many of the problems facing Germany were as a result of the Jewish people. He felt getting rid of them would be a (final) solution to the troubles remaining from WWI.
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