Was The IRS Carrying Water For The Palestinians?

The targeting of the Pennsylvania pro-Israel organization, Z Street by the IRS adds a new wrinkle to the IRS scandal. Generally the tea party groups and  religious groups expressed ideological beliefs that may have upset the Obama White House and IRS liberals but in the Z Street case the candid admission that Z Street held views that may contradict administration policy is a departure from the usual modus operandi. A Wall Street Journal editorial reports that when Z Street founder Lori Lowenthal Marcus asked about the slow pace of her tax exempt application she was told that groups such as hers had to be referred to "a special unit".

Asked about the slow pace of approval, the IRS auditor on the case, Diane Gentry, said the application was taking so long because auditors were supposed to give special scrutiny to groups "connected with Israel." Ms. Marcus says Ms. Gentry further explained that many applications related to Israel had to be sent to "a special unit in D.C. to determine whether the organization's activities contradict the Administration's public policies." Z Street filed suit in August 2010 in federal court in Pennsylvania alleging "viewpoint discrimination," and its case has since been moved to Washington, D.C.
Why the special scrutiny for pro-Israel groups? A New York Times article in July 2010 provided a clue: Tax-exempt groups were donating to West Bank settlers, and State Department officials wanted the settlers out. "As the American government seeks to end the four-decade Jewish settlement enterprise and foster a Palestinian state in the West Bank," the Times wrote, "the American Treasury helps sustain the settlements through tax breaks on donations to support them."
Did the T-men take their political cues from such stories, or did Administration officials give them orders? Either explanation would be a violation of public trust.

It should be noted that Z Street was applying for 501(c)(3) unlike most of the other targeted groups which applied for(c)(4) status. Z Street is not a political group but rather is strictly educational but its donors may take a tax deduction for their donations. It may not involve itself in politics but it can donate money to West Bank settlers which brings us to the "special unit in D.C." Does the IRS have foreign policy expertise? Can anyone in the IRS analyze the foreign policy implications of the tax code? Was the special unit outside the IRS? State Department? National Security Council? Sharing that information is illegal. Was the IRS, with or without outside help, carrying water for the Palestinians?