This is even revealed also in the Holy Q'uran, the Most Compassionate, Most Merciful Almighty Providence even said, through Prophet Muhammad (PBUH),
"To Moses We [Allah] gave nine clear signs. Ask the Israelites how he [Moses] first appeared amongst them. Pharoah said to him: 'Moses, I can see that you are bewitched.' 'You know full well,' he [Moses] replied, 'that none but the Lord of the heavens and the earth has revealed these visible signs. Pharoah, you are doomed.'"
"Pharoah sought to scare them [the Israelites] out of the land [of Israel]: but We [Allah] drowned him [Pharoah] together with all who were with him. Then We [Allah] said to the Israelites: 'Dwell in this land [the Land of Israel]. When the promise of the hereafter [End of Days] comes to be fulfilled, We [Allah] shall assemble you [the Israelites] all together [in the Land of Israel]."
Qur'an, "Night Journey," chapter 17:100-104
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Moreover - and those who try to use Islam as a weapon against Israel always conveniently ignore this point - the Holy Qur'an explicitly refers to the return of the Jews to the Land of Israel before the Last Judgment - where it says: "And thereafter We [Allah] said to the Children of Israel: 'Dwell securely in the Promised Land. And when the last warning will come to pass, we will gather you together in a mingled crowd.'" [Qur'an 17:104]
Therefore, from an Islamic point of view, there is NO fundamental reason which prohibits Muslims from recognizing Israel as a friendly State.