The best rebuttal I've ever heard to this line of arguing came from a young Palestinian student I met a college discussion panel on the Israeli wall. He pointed out that the reason the international community rightly encouraged and facilitated the development of the Israeli state in the first place was because of the horrible suffering inflicted on the Jewish people by the Nazi state. But by turning around and unleashing their own campaign of horrendous violence and apartheid-style restrictions on the Palestinian people, they were undercutting the very reason for the existence of Israel.
And here's another pristine example of how the Israeli state (but not necessarily the Jewish people, who exist quite separately from the state of Israel) has incredibly lost it's way: given the recent fall of the Tunisian dictatorship and incipient growth of democracy in several other Arab nations, you might think Israeli officials would salute this development as the growth of freedom and self-determination (you know, like Israel is to be for Jews).
But you'd be wrong. In fact, Israeli Deputy Prime Minister Silvan Shalom had this to say on the prospect of democracy in the Arab world:
“I fear that we now stand before a new and very critical phase in the Arab world. If the current Tunisian regime collapses, it will not affect Israel’s present national security in a significant way,” he said. “But we can, however, assume that these developments would set a precedent that could be repeated in other countries, possibly affecting directly the stability of our system.”
Shalom added that if regimes neighbouring the Israeli state were replaced by democratic systems, Israeli national security might significantly be threatened. The new systems would defend or adopt agendas that are inherently opposed to Israeli national security, he said.
Shalom emphasised that a democratic Arab world would end this present allegiance, because a democratic system would be governed by a public generally opposed to Israel.
So to summarize, the state of Israel does not want Arab people to have democracy because it might make life more difficult for them. So much for that whole being-against-fascism thing they used to have, I guess...