Here is a HRW report on the Israeli educational system:
Note a similar report about the US school system (most likely, every multicultural society experiences something of this sort)
Here is the US State Department Report for 1999:
Here is a definitely pro-Israeli view on this matter:
It is clear that while Israel is not without its problems with discrimination, they are being addressed, slowly but surely, as they have been in all the Western societies. To me, this is yet another reason to complete a Constitution, which would put such existential questions as "Is Israel based on discriminatory practices" to bed, once and for all.