First of all I think the best argument for including Israel is that it would be an interesting Civ to play as. It presents a lot of interesting gameplay possibilities.
The controversy is a non-issue, Firaxis is not the UN and including a Civ is not a moral judgment of its character. The Mongols raped, the Aztecs sacrificed children and so forth. But they are included because they are notable civilizations and they are fun to play as. So why not Israel? I don't see many that would actually boycott the expansion because of their inclusion, if anything any 'controversy' would only raise interest and awareness of the expansion. So that's the most important reason. Seriously they are now at a point when finding totally unique Civilizations is getting hard, and Israel is just sitting there waiting to get chosen.
Israel didn't reemerge. Modern Isreal is a reconstructed identity but its not a continuous identity from ancient times and especially not from the ancient kingdom. Customs and traditions survived? The differences between Ashkenazi, Sephardic, and Mizrahi Jews are staggering in terms of customs and traditions. That's not even counting various Orthodox sects, Beta Israel, and elements such as Kabbalah which emerged in medieval Iberia. Language? Modern Hebrew is not Biblical Hebrew. The Hebrew we know today is entirely dependent on its adoption of Arabic elements and grammar, again in the Middle Ages, not to mention Yiddish and Ladino. Even the religion itself. Rabbinic Judaism is completely different than Temple Judaism.
For the last 2,500 years or so there has been a group which identified as Jewish. This is a fact. Are Jewish people today exactly like those that lived 2,500 years ago? No, but that's a ridiculous requirement.
Is Constantine's Rome the same as Caesar's? It was different in language, customs, economy, borders and culture but it is still Rome. Is Obama's America the same as Washington's? The country which had a significant part of its economy based on African slaves now has a president which is of African descent. Is today's Chinese the same as the people who lived there 2,500 years ago? Of course not, but they're still Chinese and that is still part of their heritage.
People lived as Jews and very often died as Jews for 2,500 years, so how exactly is not a continuous identity? This implies a point in history when there were no Jews at all, which never happened (not for lack of trying). Also, as a modern Hebrew speaker I can open the Bible and understand it quite fine. Of course it's archaic but so is Shakespeare, doesn't mean English speakers can't understand it. Hell, I can even understand most of Dido's Phoenician, which is quite cool
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