Israel isn't the only democracy in the Middle East. Turkey and Lebanon are also democratic, albeit with a significantly weaker democracy indices than that of Israel. Cyprus is also often forgotten as part of the Middle East. Nonetheless the Middle East overall lacks democracy, along with many other fundamental values concerning freedom.
Muslims hate Israel mainly because that is what they've been taught to do. When they look at the conflict they look at which side Muslims are on, not on the background of each side's democracy, women's rights, human rights, standard of living and personal freedoms. In short they don't care who stands for greater values because for them Islam is the only relevant value.
Whenever they have to study the conflict they tend to look for facts and sources that will support their already made up mind to hate Israel, rather than impartially look at the bigger picture and from there reach a balanced conclusion.