Again mistranslation. I guess.
YouTube - Ahmadinejad: death to Israel
Indeed you are right, it is in many respects. Firstly, the translation is provided by MEMRI and I have already stated before hand of how much authority I attribute to this Israeli source. You might as well quote from Debka.com. Secondly, matching word to word, he was saying 'marg bar Israel' (down with Israel (its government)). He has very clearly stated himself to be a foe of 'Zionism,' and that he believes it to be manifested in the official governmental policy of the Israeli state. What he hasn't stated is that he stands against the people or the faith they profess or their right to statehood, at the expense of another people (the Palestinians) at the least. In case you think otherwise, I am not supportive of his rhetoric and a host of other issues relating to him so feel little need to defend him. I am however only pointing out the factual.
Israel never did anything bad to Iran. On contrary we helped Iran during its hardest times in 80-es. What we got in return? Exploded Jewish centers in South America, thousands of missiles on our cities, exploded buses and restourants.
I think it would be rather comical for one to assume that the controversial purported Israeli aid to Iran changed the entirety of the outcome of the Imposed War for Iran. It has been exaggerated out of porportions. Moreover, even the most supportive of sources of the cases do not report direct dealing. Also, though I will abstain from indulging much into this given that its a rather expansive topic of its own, whatever Israel possibly did was in it's vested interests to thwart Saddam, not aid the revolutionary government. So what exact help is being made a reference to and how did it shape the events of the conflict? The 80s were indeed a difficult period for Iran, and that is because foreign support was near nonexistent whereas the opposite was the case for Saddam, thus changing what would have been more natural balances. Lastly, what restaurant has Iran exploded in Israeli populated towns? Also, what of the armed adventure in south Lebanon, and the pounding of villagers by a national military?
Nevertheless if Iran wished to restore diplomatic relationships with Israel there would not be any problems from Israeli side, I gurantee you.
I would doubt it for a host of factors. At the core though, the founding issue remains the Palestinian crisis. It's resolution alone would be the building block for such diplomatic overtures.
P.S. Occupation of Palestinian territories is really poor excuse, because Iran has excellent relationships with Armenia, that occupied 20% of Azerbaijan, your fellow Shia brothers.
Iran does not support nor recognizes the occupation of the territories of Azerbaijan. If it did otherwise, your point would be justifiable. Moreover, Iran has been amongst the first to recognize the state and the first to make diplomatic overtures with it including recently a one-sided lifting of visa requirements for travel within Iran. Iran-Armenia ties received betterment given the close cooperation of our 'Shi'a brothers,' as you put it, ties with Israel and statements regarding Iran and a segment of her population.