This "only democracy in the region" line gets trotted out, but most Palestinians don't get a vote in the government that controls their lives. So "democracy" in the sense that Apartheid South Africa was a democracy, only.
If Israel were really committed to democratic ideals, they would either make all Palestinians equal citizens of the state (currently Israel, which would presumably be renamed “Palestine” the next day), or, more realistically, they would allow the Palestinian Territories to become an independent state, rather than keeping them permanently occupied and subject to Israeli military law.
on the other hand, the situation in so-called palestinian territories is completely different. Gaza strip was officially annexed by Egypt, West Bank was officially annexed by Jordan - so the official government would be these countries, and if we're talking about Apartheid, then it would be committed by these countries.