Given that Israel rules Palestine, that really doesn't meet my definition of democracy. As an American I'm sure I'd have problems with an Islamic Israel, but we tell ourselves we value democracy and freedom above all else. Furthermore, I can't imagine the current course will end up better.
You might want to do a bit more googling.
Let's start by correcting your math.
There are 5.9 million Jewish citizens in Israel. They comprise 73.75% of the population.
There are 1.4 million arab Israelis, who comprise 17.5% of the population.
Neither group is separated by law or for any other reason. They often share the same neighborhoods, employers, and elected officials.
Of the 12 arabs in the Knesset, 2 of them are Christians; which, by your numbers would mean that Christians are disproportionately represented in the Knesset because they only comprise 2% of the overall population. MK's are represented on their merits, and very little else.
How does that not conform to your idea of a democracy?
The West Bank is not governed by Israel. Under Oslo it is fully autonomous, and it elects its own government.
The arab population in the West Bank is 92% muslim.
There are no Christian members of Fatah serving in any capacity. Nor are there any to my knowledge in the "unity" government. Christians are routinely the targets of terror attacks, are required to pay the Jizya, and are regularly discriminated against by their Muslim neighbors. Often, their homes and holy sites are used as launching posts for attacks against Israel. They are prevented by the PA from rebuilding these structures.
Gaza is a completely different country, outside of the borders of Israel since 2005, and it is not a democracy at the present time.
Just yesterday, 20 peace protesters were executed. There is a gender apartheid similar to the one in Saudi Arabia. Like the Christians of the West Bank, Gazan Christians must also pay the Jizya without the benefit of any representation in government whatsoever. No freedom of speech is tolerated by anyone. Weddings are bulldozed when music is played, and honor killings are a fact of life.
If you as an American value the ideals of peace and freedom, you're being a complete fucking hypocrite by supporting terrorists in Gaza and the Territories.