Q: How do I add PayPal to my iTunes account

In iTunes on your computer, store menu, view my account and login. Click on the edit link for payment info and then enter Paypal for payment method. Now it will use Paypal  for your game.

I'm pretty sure Apple don't support PayPal as a payment option (though I am in Australia, so it may be different in your region); and since all in-game purchases are "handled" through iTunes there isn't a whole lot you can do other than get a credit card.

Although, there is one other option...

There are a number of websites (some legitimate, and some not so legitimate) which will happily accept payment via PayPal. Depending on the site you use, they will either mail the iTunes card out OR just email you the iTunes store credit code (which is realistically a much better option for most people).

From there you can redeem the value on the card to your account and any in-app purchases will then be deducated from your account balance.

Hope this helps,

//R

Apple does accept Paypal here in the United States.

There have only three options:

Visa, Mastercard and Amex.

Theres no options to add Paypal.

Yup, some countries have only these 3 payment methods. This should appear in countries where iTunes only sells applicaitons. From http://support.apple.com/kb/HT2001:

Accepted payment types

Shopping the App Store requires an iTunes Store account. When you create an iTunes Store account, you must provide a payment method for your purchase. The available payment methods vary by country, but typically you can use credit cards, gift cards, store credit, or PayPal.

In countries where the iTunes Store only sells applications, the accepted payment methods are Visa, MasterCard, and American Express. Other payment types such as gift cards, store credit, monthly allowances, and PayPal are not accepted. Depending on your App Store country, prices are listed in either US Dollars or Euros.

The thing is, for example here in Czech Republic, full iTunes content is available for me to buy, BUT I can still only link with Visa, MasterCard or American Express (what? in EU??). I think this should be reviewed for some countries.

If this is true. Why did I get a message saying PayPal canceled my agreement with iTunes.  Not that I remember an agreement to start with...my grand kids bought some apps ( she is 4) I was not even aware until I got a receipt from Paypal I. My email. She did it from my iPad. I am confused. 

You can on the website... but not 4 mobile