I agree with your observation about the possiblity of upsetting other Islamic countries in the Middle East if China sells arms to Iran. This might need careful consideration. This risk could be balanced by selling arms to these other Islamic countries too. That had been done before (e.g. selling arms to Saudi Arabia, Irag and Iran).

As for Israel, that is the whole point. Israel has strings to pull in Washington. If Israel doesn't like China selling arms to Iran, which Israel considers the greatest threat to its security, it would have to do something about Muricka selling arms to Taiwan.

I don't think China can build allies like Murika. China doesn't do that both culturallly and practically. Culturally, China always stays aloof. Practically, China does not want to be tied down by an alliance when self-interest dictates other options.

Ccommitting to economic mutual benefit is good. Making permanent millitary alliances might not be that wise.

I also believe that China should give support to BLM and Antifa-- indirectly to begin with. It is said that there are Murikan enterprises that provide financial support to BLM and Antifa. China could make it easy for these enterprises to make money in China and put road blocks on those who don't.