Because 1) this is not their own citizens they are surveilling and 2) Israel is committing genocide according to many (most?) international and human rights orgs, which would make Microsoft an accomplice
Considering microsoft disabled the emails of people who spoke out about palestinian human rights this is quite transparently a saving face tactic. They've been wilfully complicit at every step of the way.
The US, UK, EU, and Australia all surveil non citizens. It isn’t an issue for any one of them. They don’t even care that they’re doing warrantless surveillance of their own citizens.