They are both, with the overwhelming majority being Muslim. To give you some numbers to chew on, here’s something you can consider ...
Religion in Israel is a central feature of the country and plays a major role in shaping Israeli culture and lifestyle, and religion has played a central role in Israel’s history. Israel is also the only country in the world where a majority of citizens are Jewish.
According to the Israel Central Bureau of Statistics, the population in 2011 was 75.4% Jewish, 20.6% Arab, and 4.1% minority groups. The religious affiliation of the Israeli population as of 2011 was 75.4% Jewish, 16.9% Muslim, 2.1% Christian, and 1.7% Druze, with the remaining 4.0% not classified by religion.
Israel has no entrenched constitution, but freedom of religion is anchored in law. While the Basic Laws of Israel that serve in place of a constitution define the country as a “Jewish state,” these Basic Laws, coupled with Knesset statutes, decisions of the Supreme Court of Israel, and various elements of the common law current in Israel, also protect free practice of religion in the country.
Legal accommodation of the non-Jewish communities follows the pattern and practice of the Ottoman and British administrations with some important modifications. Israeli law officially recognizes five religions, all belonging to the Abrahamic family of religions: Judaism, Christianity, Islam, Druzeism and the Bahá’í Faith.
Furthermore, the law formally recognizes ten separate sects of Christianity: the Roman, Armenian, Maronite, Greek, Syriac, and Chaldean Catholic Churches; the Eastern Orthodox Greek Orthodox Church; the Oriental Orthodox Syriac Orthodox Church; the Armenian Apostolic Church; and Anglicanism. Members of unrecognized religions are free to practice their religion.
http://en.wikipedia.org/wiki/Religion_in_Israel
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Compare the percentage of the population that is Arab, to the percentage that is Muslim.
Further on down in the article are some more statistics ...
As of 2009, 8% of Israeli Jews defined themselves as Haredim; an additional 12% as “religious”; 13% as “religious-traditionalists” ; 25% as “non-religious-traditionalists” (not strictly adhering to Jewish law or halakha); and 42% as “secular”.
As of 1999, 65% of Israeli Jews believe in God, and 85% participate in a Passover seder. However, other sources indicate that between 15% and 37% of Israelis identify themselves as either atheists or agnostics.
A survey conducted in 2009 showed that 80% of Israeli Jews believe in God, with 46% of them self-reporting as secular.[9] Israelis tend not to align themselves with a movement of Judaism (such as Reform Judaism or Conservative Judaism) but instead tend to define their religious affiliation by degree of their religious practice.
Of the Arab Israelis, as of 2008, 82.7% were Muslims, 8.4% were Druze, and 8.3% were Christians. Just over 80% of Christians are Arabs, and the majority of the remaining are immigrants from the former Soviet Union who immigrated with a Jewish relative. About 81% of Christian births are to Arab women.
Well that's kind of whacked. They use the same statistic for ethnic (Jewish) background as they do for their religion.
Why aren't Polish, Russian and other European immigrants broken out. Aren't there local "Semitic" Jews that deserve to be recognized in those type of statistics.