Sure, they're dual citizens of both the US and a friendly nation (under US law, it's perfectly legal to be both a citizen of the US and Israel). There is no issue as to whether they will have conflicting interests, since the US and Israel have the same interests when it comes to terrorism.
Don't you think it would be best for American citizens to do our translating? If we don't have enough citizens to do it then we should train them - fast.
Ideally, yes. However, there are very few American citizens who speak Arabic who are not originally from an unfriendly nation. It takes about 4 years of training for a person to become fluent enough to translate Arabic to English. I agree there should be a lot more government-funded Arabic language programs. However, until we get to that point, we've got to work with what we've got. Refusing to hire someone to serve as a translator just because they are dual citizens of the US and a highly friendly country is just foolish.
Preferably US citizens, but in a pinch I'd say Israelis are less apt to mess with us than Arabs.