Although this question can have many answers, I'd like to focus on the differences between rule and conquest in some examples in Italian history.

Seldom do states have the means to implement a total and autocratic military occupation, even in our own modern era. It is much easier to rely on local notables and leave the existing mechanisms of rule in place, while perhaps only implementing significant changes at the very top; e.g. a Personal Union. In fact, after the Spanish conquest of Milan in the mid 16th century, the Spanish Kings actually granted more autonomy to the Milanese aristocracy in order to secure their collaboration, while Milan itself functioned as the fulcrum through which Spain was able to act as hegemon in Italy, influencing the minor Italian States without having to take the trouble of coercing them through force of arms. You can read more about the Spanish government in Milan in this older answer and the very similar relationships that existed between the stronger and weaker Italian States of previous centuries here as well more details of that doctrine guiding the expansion of specific states, like Venice.

I also wrote this similar answer about the causes and consequences of the Italian Wars which you might also be interested in.

Lastly, when occupying powers fail to understand the importance and subtleties of local customs and institutions, conquest and occupation can be downright impossible. This happened during the War of the League of Cambrai, where the Republic of Venice was able to punch far above its weight against the greatest powers of Europe. In fact, several hundred years later, when following the Napoleonic Wars and Congress of Vienna great part of Northern Italy became a constituent realm of the Austrian Empire, unrest and activism for independence was in great part accelerated by the Austrian Empire's unwillingness to collaborate with the local upper class (you can read more about that, and the wider Italian Unification movement, here).

as /u/AlviseFalier stated when occupying powers fail to understand the importance and subtleties of local customs institutions, conquest and occupation can be downright impossible.

So to answer your question with a question, what would be gained by 'annexing everything' as you put it? Multi-cultural political entities, be they empires/kingdoms/countries, need different solutions for different situations.

When Alexander dealt with his subjects he consciously thought about how he portrayed himself. He was able to defeat the Persian armies multiple times. Ruling the new subjects afterwards depended on how he was perceived.

This is why he gave respect to the dead Persian emperor and his family. This is why he portrayed himself as he did to the Egyptians. Sure, his Macedonian troops might not have been thrilled about it.

You can see this today with everything from the educational system in Quebec to Mongolian minority rights in China to the lack of pay highways in Brittany.

Follow-up question: why do modern day rulers still do this. Specifically, why didn’t Queen Victoria become Empress of the British Empire instead of Empress of India, Queen of the UK etc?