With the Iranian president descending into the gutter of his own prejudices and fantasies it is quite important to take the story of Israel from within, i.e. how the Israelis are dealing with their problems among themselves as much as through the eyes of the Palestinians.
Zionism in Crisis by Meyrav Wurmser in MEQ goes into the history of Zionism, always an instructive exercise. Though the idea that Israelis "did it all by themselves" is patently false, in the sense that though they fought their own battles they did it with ample supplies of western arms, this article is a place from which to ask if Mahmoud Ahmadinejad is simply mad or applying another part of a long-term Iranian strategy to "drive the Jews into the sea" : the phrase they used to use in the early days of the conflict. Since they are not Arabs, though Muslim, one wonders why they are the biggest [or big...] champions of the Palestinian cause.
Perhaps the threat of an elected government in Iraq is driving our 'bare-foot' Iranian president crazy and he is taking out his anger on a third party?
More likely is the well known principle of "an untrue insult having the effect which a genuine political argument cannot achieve": check Schopenhauer on how to win an argument. By telling the Israelis to decamp to Germany (or America) - ony the European ones or the oriental Jews and sabras too? - the land of their greatest persecution, and to deny the Holocaust, one sees the sheer desperation of the peeved bully who has taunted and beaten up his prey but has not got the snivelling prostation required of his victim.
The Iranian president's remarks, let us be honest, are being made in the knowledge the Israelis will act militarily against Iran, as they did against Osirak, if they think the Iranians are near achieving nuclear weapons. Israel would not do it for a number of reasons, including its sophisticated notions of how it fits into the wider world and because it is being restrained by the international community in some respects, but you can image a nightmare scenario where the victim decides enough is enough and goes into over-kill mode: laying waste the land of 160 million people between India and the the Arab Statesfor the greater peace of the world as a whole. Why don't we do that all over the world? Lets have a irradiated waste land of central America and between Russia and the small states it is bullying, and so on?