Let's put the shoe on the other foot. Imagine that the Muslims are making a movie that retells an ancient story where Christians are the villains. The story is about a legendary Muslim prophet (who may or may not have existed), who was tortured and killed by a group of Christians. Christians who were alive at the time and wrote histories denied the existance of the prophet or the events. Would you find the movie to be offensive and inflamatory?
I can see the Jews side of this, however I agree that the world is getting way too PC. They should make the movie and ignore the vocal fringe.