You yourself have alluded to the fact (and it is a fact) that a "Jewish state" is not the same thing as a "homeland for the Jewish people". The proposed law mentions the former, not the latter, and so it is enshringing the Jewishness of the institutions of state, and not the right of diaspora Jews to "return home".
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After Amnesty report on detention centers, Iraqi PM orders investigation (Reuters)
from the article: Loyalty to the state is enough