Absolutely right on target. It is a social thing, not necessarily a racial thing. In Israel, it's just difficult to have "mixed" anything ---- just ask the Ethiopian Jews. They aren't looked upon as different really because they're black-skinned, they're just in a different social strata due to their background. These are a people who had lived without electricity, cars, running water, supermarkets, banking, etc. Then they came to a nation that simply was light-years beyond what they were familiar with and adapting has been a challenge.
As for the charge that the arabs cannot live where they want because of their "unsuitable stock" (a claim that T_F has made several times) --- I think you will find that in general the criteria for living in any Jerusalem neighborhood is not based on Arab/Jew but more commonly secular or orthodox Jew.
An opinion survey taken recently proves this point ----
Poll: 54% of Jerusalemites believe city becoming more ultra-Orthodox.