Iran's outspoken hatred for Israel, and recent Hizbollah led attacks on Israel, is increasing sympathy for Israel among Arab countries. That's because Iran represents Shia Islam, a sect that, while representing less than ten percent of all Moslems, sees itself as morally superior to Sunni Islam (which is practiced by most Arabs, and over 80 percent of Moslems.) Iran has been more aggressive of late, supporting militant Shia in Iraq, Lebanon and Arab states on the west coast of the Persian Gulf. While there was much public support for Hizbollah during the fighting in Lebanon this past Summer, Arab governments and security services were much more pro-Israel.
Over the last decade, Israel has developed closer, and more numerous, ties with Arab intelligence agencies. That's because al Qaeda is primarily interested in destroying existing Arab governments, followed by Israel. Moreover, the Israelis have proved very efficient at dealing with Islamic terrorism. Between 2000 and 2004, Israel defeated the Palestinian "intifada" (terror campaign). So, despite over half a century of rather nasty anti-Israel propaganda, Arab governments have to deal with potential blow-back if their well indoctrinated populations find out about the "Israeli connections." Actually, such connections are no secret in the Arab world, and Arab governments are relieved to discover that such knowledge has not created a lot of domestic turmoil.
Most of the cooperation is restricted to exchanging information about mutual enemies (al Qaeda and Iranian terrorist operatives in particular.) Saudi Arabia also has a Palestinian peace plan, which is similar to ones Israel has proposed, and wants to see the Palestinian issue settled. Israel and Saudi Arabia have apparently held some secret, high level talks, where these Palestinian peace proposals were discussed. In the meantime, both countries have to deal with chaos among the Palestinians. Jordan and Egypt also share concerns about Palestinian stability, and Islamic terrorists. The saddest part of this is that, while Israel becomes more integrated into the Middle East, the nations they are dealing with are stuck with the effects of that half century of official anti-Semitic propaganda.