Bernie,
As far as I am aware, a significant portion, if not outright majority, of traffic through Dubai is connecting east/west traffic. Most people that fly Emirates either connect east/west or go to visit Dubai, or a combination of the two.
Consequently, LY could do the same thing in TLV. LY could offer east/west connections through TLV between destinations such as New York and India, Europe/India/Far East, and even Europe/Australia should EL AL one day fly to the land down under. Obtaining this sort of traffic would both enable EL AL and Ben Gurion airport grow in passenger volume, increase tourism to Israel as a significant portion of this traffic would be curious enough to spend a day or two layover visiting Tel Aviv and Jerusalem, and make EL AL attractive to an alliance.
As far as the A350 is concerned, this a/c would only be good for a TLV-SYD run, but then again so would an A380. If LY ever decides to fly to Australia, this will be an issue, but for now its not.
You are right about security and perception, however one of EL AL's (only) strengths its its perception as being the most secure airline in the world. If we can streamline security for these connecting ops while retaining the integrity of the security apparatus through technology, a critical mass of people would go back home and say security in TLV was a breeze and they felt safe, thus changing the perception of EL AL's and Israel's intrusive security regime over time. Obviously, these changes will have to be in coordination with the Shin Beit and other Israeli security services.