'Settle their/our differences' is a set phrase. These exercise is testing fixed expressions and collocations rather than the meaning of individual words. Neither of the other two options fits in this expression.

Hi! When we talk about "differences" we are speaking of any arguments and/or disagreements. "Differences" is just a general way to describe those. For one, this phrase of "settle their differences" is common. Good questions! Hope this helps you! Keep on learning!

Hello Aliaksandra, The correct answer is 3, it is a common expression "to settle their differences" Neither of the others go together. Best wishes Bob

Actually all 3 are correct as 'to settle' means 'to resolve' (reach an agreement: http://dictionary.cambridge.org/dictionary/english/settle) and disagreements, arguments and differences are all synonyms *they mean the same thing). You CAN settle an argument (correct), you CAN settle a disagreement (correct) AND you can settle your differences (disagreements/arguments) with someone. However, when we choose to talk about the 'differences' people may have e.g. an argument/disagreement, the MOST common expression we say is 'to settle one's differences'.

answer no.2 somehow sounds the best