This has given Iran an unprecedented level of popularity and credibility in the Islamic world.
How did Iran-Israel relations even get this bad to begin with?
The shah, with US backing, ran a brutal, oppressive regime until 1979, when he was overthrown by a revolution led by the Islamist, theocratic ayatollah, Ruhollah Khomeini [edit: Khomeini seems to have led one faction, which eventually seized power from the others; see below]. Khomeini's people broke into the US embassy (a major diplomatic violation - even warring parties maintain embassies) and took over 50 hostages, who they held for over a year; one demand was that the US send them Pahlavi (Egypt granted him asylum eventually).
That government still runs Iran, though via Khomeini's political decendents. They see the US as probably their greatest threat, and the US treats Iran as a major enemy. In the 1980s, the US helped Iraqi dictator Saddam Hussein fight a war with Iran, including using poison gas. These days, high-ranking US leaders periodically talk of attacking Iran and the US maintains economic sanctions against the country.
Israel is the closest US ally in the region and is seen by Iran as a US proxy, and the US and its allies are seen as competitors for regional power, with the Arabian Peninsula between Iran and Isreal being a sort of battleground. Both countries routinely threaten attacks against each other. Also, to some degree, Israel is a seen by Iran as a Western colony imposed on the Middle East.
Edit: I shouldn't assume this part is known: Iran routinely attacks US interests and destabilizes the region in its drive to dominate the Middle East, and also aligns itself at times with Russia. Particularly, now that the US deposed Hussein in neighboring Iraq, Iran has strong influence there (I think they are the only two majority Shia countries in the world). They also helped Assad in Syria fight a civil war to defeat a powerful revolution, forming a very strong bond; and they have long been the major supporters of Hezbollah, the terrorist/insurgent and Shia group that controls southern Lebanon. If you look at a map, that means Iran now has a logistical route to the Israeli border - they can drive trucks there - as well as influencing a large part of the Middle East.
Are you saying he had no part until he returned?