I think this law will only hurt the Israeli image abroad a little bit. The 3 recent human rights reports (calling Israel out for practicing apartheid) are much more damaging.
This is really about the (internationally recognized) right of return of the Palestinians. To paraphrase Bill Clinton's advisor James Carville in 1992:
"It's demographics, stupid".
The 2003 law explicitly did not apply to residents of Jewish settlements in the West Bank wanting to marry and live with their spouse inside Israel, making it, and the ongoing policy underpinning it, blatantly discriminatory.
The thing to realize about this new law is that while it makes no mention of religion, it doesn't need to in order to add to the fragmentation of the indigenous people of the area. Non-Jews in the West Bank cannot now gain citizenship in Israel, if that was an avenue they had before, nor can they return to their villages (granted, almost all these villages within Israel have been destroyed so there's nothing to return to) or gain compensation for their loss.
(For a film adaptation of the 1949 novel by S. Yizhar called Khirbet Khizeh, search for the youtube version produced by Israeli Television in 1970 (and immediately banned in 1978 when it was released.))
I'm not sure why this outrages people in the US. Since 2002, Israel has adopted a policy of prohibiting Palestinians from the West Bank and Gaza from gaining status in Israel or East Jerusalem through marriage, thus preventing family unification.
The Citizenship and Entry into Israel Law enshrined the policy in law between 2003 and its expiry in July 2021. The law barred thousands of Palestinians in Israel and East Jerusalem from living there with their Palestinian spouses from the West Bank and Gaza. Israel’s then interior minister stated the law was needed because “it was felt that [family unification] would be exploited to achieve a creeping right of return...”
This recent law just formalized and made permanent what was always there: the demographics is what's important here. When you look at Zionism as a colonial settler project, it's just part of "purity" laws and an essential part of apartheid.