The son of Ayatollah Khazali has made the claim, and although I can't confirm it 100% the story seems moderately convincing. No. The Israeli Government doesn't want to work WITH him. It wants him to be there, yes, but as a threat not as a partner, because for Iran to suddenly stop being a clear and present danger to Israel would require them to change their strategy, which they are reluctant to do because it's difficult and time-consuming. Also having an obvious psychopath in power makes it easier for them to remind people of the link between Iran and Hezbollah. If Mousavi (or for that matter Khatami) got in, people would be even less willing to believe that the latter was founded, and is to this day funded, by the former.