I have been writing about the issue for a while - see here and subsequent - the entire affair is unfortunately a rather complex one and I fear the following quick summary may not be enough. Therefore I would suggest you check the link above for a more in depth coverage.

The very short version is that the cause of the annexation of Fiume had gained some traction with the public immediately after the armistice - in fact the city had demanded the annexation in October, before the Italian government could make official diplomatic steps in that direction, even if the self proclaimed National Council which had inspired the appeal was representative of the city only in a fairly loose sense, being by all accounts an organism of the Italian administration.

For Italian Prime Minister Orlando, it would have been difficult to ignore those petitions entirely; especially given how the program of extensive annexations after the Italian victory had been adopted by those national-interventionist forces which constituted a significant portion of Orlando's government and according to him were the necessary counterpoint to the socialist and Bolshevik tide. For this reason, Orlando argued, the gravest danger for Italy was that of "a major patriotic disappointment".

It is very likely that Orlando - who, to an extent genuinely believed in the cause of Fiume d'Italia - went too far in his openings towards the nationalist aspirations, favoring, rather than restraining, the related press campaign; a fact made more problematic by the Italian approach to the military administration of the occupied former Austro-Hungarian lands (up to the armistice line, which had been set to coincide with that established with the Treaty of London), that certainly gave rise to the impression that the Italians meant to turn the temporary occupation into a permanent one.

This fact did little to improve the relations between Italy and their Allies - the Americans, not bound by and strongly opposed to the Treaty of London and to the character of the Italian aspirations in general, and the French, present in Yugoslavia with their commander Franchet d'Esperey who was reorganizing the former Austro-Hungarian troops, especially - in the build up to the Paris Conference.

Meanwhile Orlando had to contend with his Foreign Minister, Sonnino, who had finalized the Treaty of London and therefore was willing to sacrifice Fiume (the city was left to "Croatia, Serbia and Montenegro" in an additional note to art. 5) as long as he obtained the exact application of the treaty.

In part for genuine belief, in part to appease the nationalists, in part due to the poor preparations (further damaged by the inadequate efforts of the Italian Ambassador to the US) which had led him to believe that Wilson was much more amenable than he actually was, Orlando had walked into the Conference with a program of "Fiume plus Dalmatia" - the minimum program of the nationalists - that he expected to be able to revise with the annexation of Fiume in exchange for a reduction of the Italian territorial gains along the coast.

In part his inclination for diplomatic "lawyering" - which gained him little sympathy with the American delegation - and in part his conflicts with Sonnino which often forced him to dance around the issue (and contributed to the frequently unfortunate composition of the Italian memorandums) created the belief, warranted or not, that Orlando was duplicitous in his proclamations and that the entire affair was going to become a major cause of friction and conflict between the great powers, despite the minor importance of the city itself. Again, something that didn't improve the attitude of the Allies towards the Italian claims.

When the tension between the Italian delegation and the Allies became apparent - during the third week of April 1919, leading to the Italian temporary withdrawal after Wilson's public appeal - the city of Fiume had become a symbol of the Italian aspirations, the cornerstone of the nationalist myth of the "mutilated victory", which Orlando could in all likelihood no longer sacrifice without losing his Ministry.

At the same time, he could not take Fiume against his allies' will, since the action would have allowed them to void the Treaty of London and recant on any other related obligation - more so, Italy was desperately reliant on foreign funds to support her wobbling financial state and the idea of a complete break up, not only with the US but also with England and France, was inconceivable.

Therefore, by the time of his return to Paris in early May 1919, to sign the Treaty of Versailles, Orlando could not really give Fiume up, nor take it.

His successor as prime minister, Nitti, had begun working for a compromise solution based on the creation of a free state, or on a further revision of the Dalmatian border - at this point though, the relations with the Allies and the Americans especially had severely deteriorated (to the point where Nitti and his Foreign Minister Tittoni were at first regarded as dangerous "Germanophiles" - the Americans had a fairly rudimentary understanding of the inner workings of the Italian government, and were somewhat surprised by Orlando's fall), so that no positive conclusion appeared possible on a short term.

To make things even worse, soon after, the city was occupied by D'Annunzio's legionnaires - while the military governor of Dalmatia, Admiral Millo, further weakened the position of the government by favouring certain initiatives of the occupants (such as the attempted expedition to Zara (Zadar)).

For these reasons, the city's symbolic value came to largely exceed her practical significance (and largely overruled the desires of the population which - in so far as we know - were rather open to the idea of maintaining their autonomy) and a final settlement of the issue would take a few more years after the end of the Paris Conference.