This issue most recently came up in the spat between Israeli celebrity Rotem Sela who asked, "when will anyone in this government tell the public that this is a state of all its citizens," to which Prime Minister Netanyahu replied it wasn't, and said that it was a nation state of Jews alone.
This was then further confused when Netanyahu also claimed that all Israeli citizens have equal rights. What's going on here? Is Israel a state of all of its citizens, and do citizens have equal rights?
In short, I would say that Netanyahu was right about the state not being a state of all its citizens, and wrong about all citizens having equal rights.
But it's more complex than that. Israel uses this dual construct of citizenship and nationality to confuse and even downright deceive the international community – indeed even its own citizens. It is my impression that many Israelis don't even understand this fully.