"How do the residents - Arab and Israeli - distinguish the good guys from the bad guys?"
The ones hiding behind women and children while attacking you are the bad ones.
But to your point, the closest genetic relatives of Jewish people (Ashkenazim or Sephardi) are the Samaritans, followed by the Arabs in Judea/Samaria. It is not possible to tell the difference with the eye.
For illustration, I post a picture of a noted "Palestinian" terrorist:
The "Palestinian" is the ginger. The rest are Israeli police of various kinds.
Thanks.
Your comments are very helpful.
I know a large percentage (majority?) of Israeli Jews come from North Africa and the Middle East.
I assumed the north European Jews most closely resembled Europeans.
And, yes, I always mix up which group is Ashkenazi and which group is Sephardim.