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This option was probably removed because the server load of extracting archives in PHP is ridiculous. FTP does not have an option to extract files "on the server".

If you need to upload a zip file, the most reliable way is to use a desktop FTP client like FileZilla, extract the archive on your own computer and upload the extracted folder to your account. It may take a while (depending on your connection to the FTP servers), but it is pretty much guaranteed to work.

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