Idealism, the belief that reality is a product of the mind, rejects proposition four and states that evil is just an illusion. And as long as this is logically possible, there is no contradiction between the existence of an all good, all powerful God and the existence of evil. Just because we may not be able to figure out what that reason is does not mean it does not exist. However, God has not left us completely in the dark. This world is clearly not the best of all logically possible worlds, but it is the best world God could create given His commitment to create genuinely free creatures like us.
Free creatures are the only beings who can love and experience love.
Since one of God's main purposes in creating us was to have a reciprocal love relationship with us, God created the best of all actually achievable worlds. God cannot make people freely choose to good or freely love Him. If He makes them do it, they are not free. If they are genuinely free, then He can't make them do it. That would be a contradiction.