Admirers of the Jewish state praise it as an exemplar of democracy in the Middle East. Whether that is true or not is irrelevant to the concerns of the Muslims. Democracy is not a procedure that a country learns by example, like water management or road-building. It is adopted or not as an existential choice. For the Muslim world, what matters is not that Israel is a functioning democracy located in the Middle East, but rather that it is Israel that humbled the House of Islam.

Because success is central to Islam’s promise, and the restoration of the Jewish commonwealth in its historic territory along with its ancient capital seems to validate Jewish scripture rather than the Koran, Israel offers an existential challenge to the Muslim world. Muslims will never accept the permanent presence of Israel unless compelled. But the bad news in this case is the good news, for if the Muslim world were to accept Israel’s existence, the collective humiliation would be so profound as to force the concept of humility into Muslim political life. The best thing Western governments could do to foster democracy in the Muslim world, in fact, is to move their embassies to Jerusalem.
http://www.atimes.com/atimes/Middle_East/IK20Ak02.html