Dorm rooms are only given to people who don't live in the area of the university so almost all of the students from the TA area (who are mostly Jewish) aren't be eligable for a dorm room. Israeli Arabs, on the other hand, tend to live mostly in the north of the country so their relative portion of students eligible for dorm rooms is greater than their % in the population at large. In addtion, dorm rooms here aren't exactly luxurious so students who come from family's with money will often prefer to rent an apartment and since Israeli arabs are, on average, poorer than Israeli Jews, it's likely that the portion of Arabs requesting a dorm room is higher than among Jews. So looking only at the % of Israeli society is really silly. All that having been said, I don't see why military service shouldn't be a factor in granting rooms in the dorm. Kids who serve in the Army or volunteer for national service give 2-3 years of their life to Israeli society as a whole and risk their lives for us while those Israeli citizens who don't serve, Arabs and Jews, can use those years to work, earn money, learn etc... so why shouldn't military service be a factor. The bottom line though is that the government should make university tuition and student housing affordable so that no Israeli, Jew or Arab, should be prevented from receiving an education simply because he/she doesn't have the money to pay for it.
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from the article: No place in university dorms for Arabs who didn't serve in IDF