They cannot have their cake and eat it too: if they claim to be a democracy and recognize human rights, then they must face the fact that current trends will eventually erase the Jewish racial majority and give the Arabs real power within the system (i.e.- without resorting to terrorism), and Israel would no longer be a "Jewish state"; it would be a Western democracy. Conversely, if they take measures to suppress growing Arab demographics or marginalize Arab voters, it will become almost impossible to continue insisting that they are not a racist state.
To discriminate or not to discriminate? Could there be any doubt which course they would take? For a long time now, the Israeli government has been holding up requests for unification of families formed by the marriage of a Palestinian and an Israeli citizen (i.e.- not letting them live together in Israel). In July 2003, they went the next step and formally signed a law preventing such unifications. In the same vein, Israel has no laws guaranteeing racial or religious equality. We take such laws for granted in modern western nations, but Israel is, at heart, an anachronistic throwback to an era of primitive racial and religious tribalism.
Human Rights and Israel.
Israel has faced scrutiny on its lack of respect for human rights before, but the US has consistently shielded it. In 2001, the UN's Durban Conference on international human rights and racism was effectively marginalized when Israel and the US stormed out because Israel was not being excluded from criticism. The US was also the only nation out of more than 50 to vote against a resolution condemning the Israeli apartheid policies in the Occupied Territories (Jews there can vote but Arabs can't, among many other discriminatory rules) earlier that year, and in fact, the US has a history of repeatedly and vehemently using its veto power to quash any and all UN resolutions against Israel.