Israel is quite right to demand an apology from CNN for doing this. Their defense of their tactic is pathetic, and they do not deserve to be watched.
Update: if anyone wants an earlier example of quotation tactics, here's a post from Comics Beat 3 years ago about the terrorist attacks that were planned against Kurt Westergaard, but thankfully foiled. The headline reads as 'Cartoonist target of "terror plot"'. And though they say at the end that a potentially even more horrible story was averted, they still showed some signs of disrespect by beginning their post that way.