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Unfortunately those that draw that line in reality are the same people who want encryption banned for consumers but not government agencies because it prevents the sharing of child pornography and terrorism make that decision. Are they right? Is that the only argument that matters?

Most knives are not intended to harm or kill, they just happen to be used for that case sometimes; you can make the same argument for a large stick wielded by someone with the intent to kill. Handguns however have one purpose: to kill someone (aside: saying "but wait they can be used in gun ranges" kinda proves that point). They were explicitly produced for this purpose. Ideally gun manufacturers would be held accountable for their production; unfortunately they are not, and gun companies just throw up their hands and say "well this gun was legally sold so I can't help you". Likewise, if you produce and sell a piece of software whose main goal is to infiltrate personal devices, especially in a targeted manner, then you are ideally liable for outcomes regardless of who applies your software. NSO is giving the exact same response as those gun companies.