The Israeli government announced this week that it will impose sanctions and severely limit the activities of Al Jazeera within Israel and the Occupied territories. According to Haaretz (the major left-leaning Israeli paper) Israel will not renew visas for non-Israeli journalists working for Al Jazeera, nor grant visas to new comers for the network, and have restricted Al Jazeera's access to government sources. According to the article, Israel in fact considered declaring Al Jazeera "a hostile entity," and banning it from the country altogether, before deciding that would not hold up in Israeli court.
Al Jazeera's coverage is certainly critical of Israel, particularly during the Gaza crisis. But what put this situation over the tipping point was not the coverage per se, but the actions of Al Jazeera's home country/financial sponsor, Qatar. Qatar was the only Arab Gulf state to have limited ties with Israel (a trade office with two resident representatives), but it severed these ties during the Gaza War, an action Israel admits was the catalyst for this sanctioning of Al Jazeera. In a series of diplomatic summits over the past few weeks regarding Gaza, Qatar has given Hamas and to some extant Iran a vocal platform to speak on the issue, leading to charges that its choosing sides in a new Arab Cold War (there's a lot of this talk: see Jerusalem Post, MEMRI, both right leaning I believe, but also Dubai's Gulf News). Those are a lot of articles that basically argue the Israel-Palestine Conflict is beginning to roughly fall into a Egypt-Saudi-PLO (and presumably Israel and US) axis and a Iran-Syria-Qatar-Hamas axis.
Whether or not that's true, Israeli officials apparently think it is, and have made a major international broadcaster a pawn in a diplomatic/strategic struggle. Israel believes that Qatar is using Al Jazeera as a weapon of sorts, turning world opinion against it (this is another Haaretz article, a month old but very interesting about Al Jazeera's effect in the U.S.) and is responding accordingly. Interestingly, Egypt also barred Al Jazeera from crossing into Gaza on its side of the border. Al Jazeera's credibility on the Arab street, and thus its public diplomacy implications, have plugged it into the realpolitik of the region. Al-Jazeera, by the way, is not reporting any of this, at least not on the English page (my Arabic reading skills aren't there yet).
One last note; despite Qatar's highly-publicized diplomatic efforts with Syria, Iran, and Hamas, and its sponsorship of Al Jazeera, it still hosts the largest US military base in the region, the forward headquarters for Central Command, nerve center for the Iraq war. How's that for the difference between official diplomacy and public diplomacy?