"It will form for England a little loyal Jewish Ulster in a sea of potentially hostile Arabism."
I guess he was right about some of the similarity with Ulster, though perhaps not in the way he intended.
edit - as for democracy leading to theocracy in that part of the world, firstly Indonesia is almost 9,000 km away, and secondly I do not think there has been any recent time where external powers have not been massively fucking about round there, so you cannot really draw any conclusions about this being a feature of the local culture.
The Arab league policy is that granting Palestinians citizenship or otherwise integrating them in the population would effectively give Israel carte blanche to depopulate Palestine by driving the population into exile, and so it's strongly frowned upon, with the result that Jordan is the only country who have granted citizenship to a large proportion.
The British also helped establish the Saudi and Hashemite kingdoms etc. The Syrian King Faisal (someone I think was a really progressive guy) was also installed by the British in Iraq. And all of this happened after the fall of the Ottoman empire.
In that part of the world where religion is very strong, it's interesting to see that democracy always leads to a theocratic government (except in Indonesia where it's so far successfully been separated) and thus the constant struggle against violence, threats to usurp power and human rights oppression.