We had a discussion a while back on the fate of Israel post Transition. Yesterdays massive traffic inflow for the Abbott blog saw a lot of readers go back through the archive and one left a long comment on that entry that deserves to be read more widely than it would as an afterthought to a long dead entry.
Not sure who wrote this, but here t'is:
This thread is way old but I just wanted to throw in my two cents since it got me thinking: tl;dr version is basically that there'd be an Israel though it might not have quite the same borders as in the original timeline.
To make a long story short, basically by the 1930s the Jews of the Mandate had all the essentials of a state (gov't, self-defense, economy) so the question to ask here is what would prevent them from becoming independent in the altered circumstances of the new timeline? The Soviets probably conquered outright Iran which means all the various Arab armies that would have invaded have other things to worry about. (I can't figure the Soviets conquering the entire Middle East; just holding the extra territory you have them conquer in Europe and Asia leaves them extremely overextended.)
That leaves on four major players on the ground in the Mandate itself: Britain, Palestinian Arabs, Israelis, and the Hashemites of Jordan. With the Soviets grabbing territory deeper into the Mediterranean the British would probably strip the Mandate of every troop it had to reenforce its hold on Egypt, Cyprus, and Crete. As for Jordan, they and their army were still basically under British control (they didn't become independent before 1946) and if the Soviets have Iran the Jordanians would probably have to send all their troops east to reenforce Iraq where there was after all another Hashemite monarchy in control. They could even have turned north to try and take Damascus which is territory that Britain originally promised the Hashemites anyway but had to renege on because of the French who aren't an issue in the altered timeline. That leaves the Israelis and Palestinians. The problem for the Palestinians is that their leadership was basically the Mufti of Jerusalem who spent the war in Berlin and is probably radioactive vapor in the new timeline. Plus the Palestinians had spent the late 1930s unsuccessfully revolting against Britain and eliminating all potential competitors to the Mufti. So basically they are in worse shape to revolt and put together a Palestinian state than they would have been in the original timeline. That leaves the Israelis who have a government, the core of an army, and with the Holocaust aborted, have a much larger population to count on in the long run.
About the only thing that would change is borders; the British would want Egypt and Transjordan to be linked so would probably push to have the Negev kept out of Israeli hands (something that was kicked around in the 1950s of the mainstream timeline as part of peace proposals). I'd guess that Britain would keep the Negev but give Israel territory from the Sinai adjacent to what is the Gaza Strip in the mainstream timeline.
By the 1940s the ability to outright prevent Israel from coming into being becomes something very difficult to prevent and with all the other chaos and changes going on in the altered timeline, what makes it important to any major power to stop them from being independent?