God cannot and will not tolerate sin. "The wages of sin is death (Romans 6:23) If this is so, then why did God allow sin to occur? If he is all-knowing, before he created the world, didn’t he know that sin would occur? If he hates sin, and he is the creator of all things and knows all, why did he let it occur…? Also, why did God create Hell? I don’t understand why God would allow evil to occur?
This is the problem of evil. It is one of most difficult questions one can ask about biblical Christianity. In essay on the Christian world view (https://www.evidenceforchristianity.org/index.php?option=com_custom_content&task=view&id=5125) I provide the following answer: (more comments on this question below)
6. Although all God’s creation, including the physical world is good, evil does exist. Such evil is the result of freedom of will given to created beings and their subsequent decision to use that freedom to "sin" (defined as transgressing the will of God).
This brings us back to Genesis. The story of Adam and Eve is the story of us. God gave us everything for our pleasure and enjoyment. Why? Because he loves us and because he wants us to love him. But what did we all do? We rebelled and chose to do things which are unholy. As Augustine put it, evil is not a thing in and of itself. If it were, that would be dualism. Rather evil is good which has been corrupted by free moral agents. Something which was created for good purposes is turned for evil. Nothing God created is evil, but some of what God created is capable of doing evil. God gave us a choice. He asks us to "choose life" (Deuteronomy 30:19), but many of us choose rebellion. The physical laws which are discoverable by science are not the only "natural laws." There are moral laws as well, and they are as inescapable as the law of gravity. Rebellion against God’s holiness produces suffering in this world (Exodus 20:5-6), both on those who sin and on those around them. This is the answer to the "problem" of pain, suffering and evil.
7. Because of God’s justice and his holiness, those who choose to rebel against him will ultimately be judged and separated from God for eternity.
Not only does our choice to rebel and to sin bring on temporary physical and emotional suffering in this life, it also brings judgment in the world to come. "For we will all stand before God’s judgment seat." (Romans 14:10) "’The Lord will judge his people.’" It is a dreadful thing to fall into the hands of the living God." (Hebrews 10:30-31). God cannot be mocked. He is patient and kind, and he wants all men to be saved and to come to a knowledge of the truth (1 Timothy 2:4), but "the wages of sin is death." Again, as with all the qualities of God, this fact is unavoidable. God does not change or compromise his holiness. It has been said that God does not send people to hell, but he accepts their choice to rebel and be eternally separated from him.
8. The solution to evil and its eternal consequences is provided by God through the atoning substitutionary sacrifice of Jesus Christ.
This is the essence of the gospel. As was prophesied, "the Lord laid on him the iniquity of us all." (Isaiah 53:6) "By his wounds we are healed." (Isaiah 53:5). "But God demonstrates his own love for us in this: While we were still sinners, Christ died for us." (Romans 5:8). God’s holiness and justice were not superseded or violated in this substitutionary death. "He did it to demonstrate his justice at the present time, so as to be just and the one who justifies the man who has faith in Jesus." (Romans 3:26). Biblically, this is a theological fact. How does this affect one’s world view? If this is true, then everything is different. Suffering makes sense. The existence of evil makes sense. Our innate and universal sense of justice makes sense as well. Yet, we can live as free men and women, not using our freedom as an excuse to do evil, but using this gift of freedom to love and serve others (paraphrasing Galatians 5:13-15) without living in constant fear of judgment when we fall short, as we inevitably will do.
You are right that God will not tolerate sin. Yet, he created us, knowning that we would rebel. Why? Because he loves us. Love gives a choice. God created us because he wanted to love us and he wanted us to love him. Either God gave us a choice or he did not. Clearly he did. God’s foreknowledge is not predestination. God knows what we will do, but he dies not cause us to do evil. I suppose one might argue that, if were going to sin, it would have been better if we had never been created. Personally, I do not agree with this. I am thankful that God created me. God does not do evil and he does not tempt us to do evil, but he allows us a choice, and we chose to do evil.
The problem of hell is closely related to the problem of evil. God’s justice is as real as his love. God’s justice is not something that any of us ought to fool around with. The wages of sin are death (Romans 6:23). This is part of God’s justice. Let me be honest with you. If it were up to me, the wages of sin would be to lose our reward in heaven, but not to be sent to hell. However, I believe that God does not choose to send anyone to hell. It is our choice which sends us to hell. Eternal punishment is hard for us to accept, but the same God who created us, who sent Jesus for our salvation, who inspired the Bible, tells us that rebellion against him will bring about punishment and separation.