What makes a 'country' is and itself very complicated. I do not believe Israel would want diplomatic relations with countries which sanction it.

ISIS was a 'state' at its peak and held control over territories but no one else had any formal diplomatic ties with them because everyone rightfully recognized them as an unlawful terrorist state. Is Israel really that different? Israel has shown blatant disregard for any peace plans whether its 1967 or Oslo. There are good reasons to not recognize Israel even though it holds territory.

Also, just because two countries have no formal diplomatic relations doesn't mean they can't have interactions. Look at USSR and Israel in this example

https://en.wikipedia.org/wiki/1988_Ordzhonikidze_bus_hijacking

They were extradited to the Soviet Union and sentenced to prison terms, although at that time Israel and the Soviet Union had no extradition treaty as relations were still severed at the time. All hostages were released.