In politics (and this is politics), appearance is everything. Like it or not, whether it was the intention or not (and I know that legitimizing denial was not the Pope's intent), accepting Williamson back into the fold will be read as a tacit acceptance of those who deny the slaughter of six million Jews by those who are in denial, not just by the Rabbinate. Since the current stance of the Palistinian Authority, Hamas, Iran, and most of the Muslim world is that the Holocaust never happened (though they think it's a good idea) and therefore Israel is illegitimate, the Pope's appearance of acceptance represents a danger to Israel's appearance of legitimacy, and therefore to her continued survival.
The Rabbinate would be irresponsible if they let this slide without the strongest possible protest, especially since the Vatican has been trying to position herself as a neutral arbiter of affairs in the Holy Land for several decades now.
Shalom.
Then they are wrong, and misinterpreting what the Church is. The Church on earth is full of sinners, with very few saints. The church exists to bring men the means of salvation -- not to validate their already-saved status. One is joined to the Church through baptism and belief, not behavior.
If the Rabbinate or others want to know what excommunication is and is not, they need to consult those who impose it and lift it. If they consult only themselves, they should keep their conclusions to themselves.
No one -- not even the Pope -- is responsible for the distortion of his words and deeds by others. The Church is in the truth business, not the appearances business.