How did this come about? No doubt there are many & lengthy answers to that question.
A google search produced this document; Buddhism and war: Two Reviews.
The document looks at the book Zen War Stories, a book by Brian Daizen Victoria, about WWII era Japanese Zen Buddhism and its collaboration with the imperial Japanese government in its war & conquest project. An excerpt from the review:
"The author argues that violence is incompatible with Buddhism’s message of peace and compassion and pursues the weighty evidence of Zen’s failure to live accordingly. Victoria documents the support given by Zen Buddhists to the military regime, including masters who would later bring Zen to the west. He also shows the uses that the military intentionally made of Zen, such as modeling military life upon Zen monastic practices (from the organization of units down to mess-kits) and cultivating a philosophy which made Japanese indifferent to death and suffering—whether one’s own or others’. If a soldier did not care about his own life and was resigned to death, how much value could he see in the life of others?"
The review goes on to look at Tessa J. Bartholomeuesz book In Defense of Dharma: Just-War Ideology in Buddhist Sri Lanka. An excerpt from the review:
"Emphasizing the diversity within Sri Lankan Buddhism, she examines three approaches to the question of war. First, she depicts a position which she calls Buddhist fundamentalism. This extreme view maintains that the war must conclude with the defeat of the LTTE and the restoration of a unified Sinhalese Buddhist Sri Lanka. The argument for a holy race war generally follows a three step legitimation of Anti-Tamil violence: (1) Sinhala and Buddhist identity constitute a unity that is radically distinct from the Dravidian Hindu Tamil interlopers from South India; (2) Sri Lanka is the island of dharma (dhammadwipa) ordained by the Buddha himself (by his three apocryphal visits) for Buddhism such that the whole island is the Buddha’s sacred relic and the loss of its unity would destroy this legacy; (3) the justice of a defensive war for dharma justifies the preservation of Sri Lanka in its unity as a majority Sinhalese Buddhist nation through military action against the Tamils, identified with the invading damila of the medieval epics, thus associating the present situation with past threats."
So, basically, a whole bunch of statecraft issues - work related to maintaining a unified country - is blocking the actual practice of dharma & the real work of Buddhism in Sri Lanka, according to that review. The existence of the war situation probably makes it possible for the government to carry out kidnappings & extra-judicial killings & harassment of journalists; items that help create Sri Lanka's reputation as a country with one of the worst human rights records in the world. Also the belief that many Sinhalese has of race theory (existence of races, some being better than others, pretty much Nazi stuff at its core); no doubt a thing amplified by the British colonial experience but completely against the core ideas and values of Buddhism as they were taught to me & as recorded in many documents world wide & throughout the ages re: Buddhism. Perhaps the work of the ancient Buddhist missionaries ultimately failed, and Sri Lanka is not really a Buddhist country any more - and is Buddhist only in name.
Maybe things will get better. 'cause, as the old (meaning a long time ago) teacher is reported to have said: "Conquest begets enmity; the conquered live in misery; the peaceful live happily having renounced conquest and defeat" (Dhammapada, verse 201)." , and who knows, a new generation of Sri Lankans could try to do a better job & actually succeed in incorporating the positive elements of Sri Lankan Buddhism into their attempts to solve long & difficult problems of the island such as violence (state & rebel), separatism, racism, recovery from colonialism, underdevelopment & poverty.
More about the two books at the review.