You say that discrimination is a "societal development not promoted by the Israeli government." In principle, most (not all) of Israel's state policies and institutions pertaining to Israel proper are "officially" nondiscriminatory. In other words, upon reading most policy seems fair and nondiscriminatory. However, in practice, blatant discrimination against Arab citizens is exercised not only in Israeli society, but throughout the government. Government is comprised of Israeli citizens and in a so-called democracy, government will reflect the attitudes of these citizens and public attitudes in general. Nowhere is Israeli state policy (as it's implemented on the ground) more reflective of public attitudes than in the dizzying discrimination practiced by the government against Jerusalem Arabs. Official state policy in the Territories is even more discriminatory than in Israel proper because of COGAT's exploitation of the security pretext you mentioned. Although official government channels will always convey to the world (and to Israeli citizens for that matter) that Israel is a democracy that officially respects minority rights, in practice the government does indeed discriminate against its Arab citizens. After all, in a democracy the government is bound to reflect the attitudes of the majority. And as you admitted, the majority (either actively or passively) practices discrimination.
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from the article: Meet the Israelis