While I agree with most of what you write, the issue seems to be the inconsistencies and haphazard way of making up rules, with exceptions, protektsia, etc. etc. (along with total frustration with disruptions to many people's lives, without a proper individualized review process).
What you describe, while sounding uniquely Israeli, is the immigration/admissions process for the US and what a lot of people complain about when dealing with USCIS.
Israel could do a lot better, there's no question.. A lot of the rules were/are random and bizarre. But a lot of the issues that surface seem to be around people who live here w/o ever formalizing their status and it has trickle down effects I guess. Similar problem in the states with people on green cards for 30 years who never naturalize. (Although frankly if the folks in Israel chose to be Toshavei Keva it probably would make things easier)