It isn't Israel saying that Iran shouldn't exist. While your argument is seemingly logical, it lacks common sense. I'd like to see what Germany's (or any other nation) actions/reactions if it was effectively surrounded by countries which didn't think there should be a Germany.
Don't me wrong, I realize Israel's hands are not clean. Unfortunately the situation isn't simple. And while Israel has done things I don't approval of, overall I'll take their position over Iran's without much hedging.