Israel enslaving the world? I'm hearing the echoes of a "Jews are secretly in control of every powerful institution" conspiracy in your posts, buddy. I'm not exactly pleased.
Just doin' my part
I think the guy meant "its ok to have PODs where Israel does better, so it should be fair to have PODs where Israel does worse".
Anyhow, thats how I understood his point, and he'd be right about that. Theres no reason to consider the destruction of Israel a taboo. They were lucky to survive their first few wars. Coulda lost in 48. Coulda lost in 67.
I suspect the Middle East would be slightly less of a mess, but there'd still be flashpoints. The Sunni/Shiite tensions would take precedence now that the common enemy is gone. Dictatorships may be a bit less stable without the threat of war. Religious Radicals a bit less empowered without the Israeli conflict as well. Unless its defeated LATE and radicalism is seen as the vehicle of victory, but Im assuming we are talking an early victory, as it is more realistic.
Palestinian/Jordarnian economy would probably look like any other Arab state in the region right now. No Israeli miracle. Thats bad, because the Israelis ARE handy to have around and quite innovative in terms of science. No doubt some Israelis manage to become successful in the diaspora, but not to the extent provided by the opportunities of a nascent Jewish state with generous support from the diaspora and sympathetic western countries.
Larger diaspora, universaly seen with pity and sympathy in the western world. Probably a larger political voice as a result in Europe, maybe also in the US.
Speaking of which, the US will need more allies in the middle-east to make up for the loss of Israel and may tolerate things that were no-go's in OTL, such as say, an Iraqi takeover of Kuweit, if they needed a well-placed ally. Without support for Israel, the US would probably still end up disliked in the region because it still needs to flex its muscles over energy and early on, to oppose Soviet influence.
All in all, thats quite a few butterflies to take into account. Id say, no need to see topic as flamebait, its potentially very interesting.