Is Delta Wrong?

Update on 6/28/11 

The Royal Embassy of Saudi Arabia issued this statement on 6/27/11:

Rumors being circulated via the Internet regarding passenger flight restrictions on Saudi Arabian Airlines are completely false. The Government of Saudi Arabia does not deny visas to U.S. citizens based on their religion.

It doesn't change the content of my article in any way. 

I've watched the growing rancor all over the internet as Delta's new alliance with Saudi Arabian Airlines is more closely examined. USA Today reported on it and then withdrew their article as being incomplete. The issue is that with the new alliance, when you buy a ticket to Riyadh from Delta (which will connect you to Saudi Arabian Air), Delta will have to enforce Saudi Arabia's laws and not board passengers with an Israeli passport stamp.
Delta Airlines attempted to clarify on its blog. Delta representative Trebor Banstetter wrote:

We, like all international airlines, are required to comply with all applicable laws governing entry into every country we serve. You as passengers are responsible for obtaining the necessary travel documents, such as visas and certification of required vaccinations, and we’re responsible for making sure that you have the proper documentation before you board.

 Not everyone is buying it. Rabbi Jason Miller wrote in The Huffington Post:

The issue here is one of principle. Delta isn't being forced to include Saudi Arabian Airlines into its Sky Team Alliance. In fact, Delta could stand on principle and refuse to include Saudi Arabian Airlines based on its discriminatory policy. No, it's not Delta's fault that the Saudi government is anti-Semitic, but it doesn't have to go along with it. It's as if the Saudis are telling Delta that when it comes to Jewish passengers it's name should become an acronym: "Don't Even Let Them Aboard."

And while the focus is on Jews, Religion News Service also reports that Saudi Arabia can deny entrance to anyone carrying a non-Islamic item of faith, e.g. Bible. Women also must be dressed according to Saudi standards of modesty and "be met at the Saudi airport by a man who will act as a chaperone."

While I find this discrimination despicable, it seems Delta is caught in a quagmire. We are not at war with Saudi Arabia, but much of what this little nation stands for rankles most Americans. (And many others.) The Saudi Arabian government is considered an ally by our government in the War on Terror. Should we forbid Americans entry into this country based on its discriminatory policies? Many have legitimate reasons to fly to Riyadh, much as they can't stomach the government who enacted these policies. Delta is not only abiding by the laws of the passenger's final destination but also protecting passengers from being denied entry at the other end.

The sticky point is that Saudi Arabian Airlines is not a free enterprise in a free-market economy. It is a government-owned airline.

So by joining forces for the purposes of business with a Saudi government-owned business, is Delta wrong?