[WS:] I think this is something to be expected once people embark on a settler colonization project. This happened many times before in European colonization of Africa that strictly follows this pattern. The settlers became the most rabidly racist and xenophobic element - much more so than the general population from which they originated- and were often looked down by the British colonial authorities (e.g. one British official called the British settlers in Kenya "white Mau Mau." While it is deplorable, it is also understandable, as being determines consciousness. If your "being" consists largely of robbing natives of their resources and land, your consciousness typically follows.
What I find far more interesting is the transformation of European Jews from founders of socialism to Zionist settlers. As I see it, socialism is fundamentally rooted in the Jewish experience in Europe, specifically the sense of community and solidarity, the mostly working class status (as opposed to either gentry or peasantry), and the lack of national territory to defend, which explains internationalism of the socialist/communist movement of which Jews were a prominent part (cf. Rosa Luxemburg). This is very much different from other European nations that did have territorial claims, and thus were nationalists first and socialists second, as the fate of the Second International demonstrates. There would be no socialism as we know it without European Jews.
As I understand it, the Jewish community in EE (or whatever was left of it) was deeply divided by the issue of emigrating to Palestine (this is based on the empirical work of Irena Hurwic Nowakowska http://books.google.com/books/about/A_social_analysis_of_postwar_Polish_Jewr.html?id=VbltAAAAMAAJ ). Those who opposed it, remained in EE and assimilated, often by joining the ruling communist party or, ironically, by becoming Catholic. Those who emigrated became a part of the settler colonialism project, as you say.
What I find ironic - or tragic perhaps - is that neither group managed to escape the perils of nationalism - which I guess is a contributing factor to the global demise of socialism.
-- Wojtek
"An anarchist is a neoliberal without money."