You've kind of proved the point you're arguing against here. If you decided to walk down the street with a Nazi flag you'd be fine, there's no law against that unless police decided to act under hate crime legislation.
Here's a photo from an IRA parade in the UK in April this year. The only arrests came when they started petrol bombing police. There's also no action taken when loyalist paramilitary flags, mainly in support of the UDA, are flown.
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As for the idea that the police have no choice other than to arrest people at Palestine protests how do you explain the fact that in some areas the police have been instructed to not arrest people as its a complete waste of time and resources?