So stretcht out huge in length the Arch-fiend lay Chain'd on the burning Lake, nor ever thence Had ris'n or heav'd his head, but that the will And high permission of all-ruling Heaven Left him at large to his own dark designs, That with reiterated crimes he might Heap on himself damnation, while he sought Evil to others, and enrag'd might see How all his malice serv'd but to bring forth Infinite goodness, grace and mercy shewn On Man by him seduc't, but on himself Treble confusion, wrath and vengeance pour'd.(I. 208-19)
Here Milton offers his answer to the Problem of Evil, explaining how evil can exist in a universe ruled by an omnipotent and benevolent God. It's one of those pesky theological questions that one one has ever answered to everyone's satisfaction. Personally, I think the best answer appears in the Book of Job, in which God's purpose remains necessarily beyond human comprehension. Milton, however, has promised to "justifie the wayes of God to men" and therefore cannot take refuge in a plea of ignorance (I. 26). So here we see his answer: God allows Satan to do evil because He knows Satan will only succeed in heaping damnation upon himself and bring forth even more good in the long run. (This is the theological doctrine of felix culpa or "the fortunate fall.")
Although Milton avoids appealing to the Job argument, his treatment of Satan's evil here resembles another Old Testament story: that of Moses and Pharaoh. In Exodus, Moses repeatedly insists that Pharaoh release the Israelites and Pharaoh keeps agreeing, but then changing his mind. The Bible is quite consistent in describing Pharaoh's repeated failures to live up to his agreements: "he hardened his heart." But by the time we get to the plague of boils, Pharaoh seems to have had enough. This time he does not harden his own heart. Instead, God does it for him:
And they took ashes of the furnace, and stood before Pharaoh; and Moses sprinkled it up toward heaven; and it became a boil breaking forth with blains upon man, and upon beast. And the magicians could not stand before Moses because of the boils; for the boil was upon the magicians, and upon all the Egyptians. And the LORD hardened the heart of Pharaoh, and he hearkened not unto them; as the LORD had spoken unto Moses. (Exodus 9.10-12)
God's no fool: he recognizes that in Pharaoh he's got a great antagonist. By hardening Pharaoh's heart, God keeps him in opposition so that he'll have an excuse to make his final punishment of the Egyptians all the more terrible ("all the firstborn in the land of Egypt shall die," remember?) and the glory and power of God will shine out the greater. I think he's working the same strategy here in Paradise Lost.
Indeed, we have further confirmation of this in an epic simile that Milton uses a little bit later in Book I:
he stood and call'd His Legions, Angel Forms, who lay intrans't Thick as Autumnal Leaves that strow the Brooks In Vallombrosa, where th' Etrurian shades High overarch't imbowr; or scatterd sedge Afloat, when with fierce Winds Orion arm'd Hath vext the Red-Sea Coast, whose waves orethrew Busiris and his Memphian Chivalry, While with perfidious hatred they pursu'd The Sojourners of Goshen, who beheld From the safe shore thir floating Carkases And broken Chariot Wheels, so thick bestrown Abject and lost lay these, covering the Flood, Under amazement of thir hideous change.(I. 300-13)
What starts out as a calming and peaceful simile about autumn leaves floating on brooks in the shady glens of rural Italy (a fairly typically Homeric simile, actually) takes a suddenly violent turn; the falling angels no longer appear as autumn leaves, but as the smashed bits and pieces of Pharaoh's army, floating on the surface of the Red Sea.
And Moses stretched forth his hand over the sea, and the sea returned to his strength when the morning appeared; and the Egyptians fled against it; and the LORD overthrew the Egyptians in the midst of the sea. And the waters returned, and covered the chariots, and the horsemen, and all the host of Pharaoh that came into the sea after them; there remained not so much as one of them. ...Thus the LORD saved Israel that day from the hand of the Egyptians, and Israel saw the Egyptians dead on the seashore. (Exodus 14.27-30)
I had heard that the last Book of Paradise Lost confirms the felix culpa theme, but I'm already seeing it here in Book I.