The claim is dubious, to say the least.
(The good news is that the incident will probably discourage Israeli Muslims from joining ISIS.)
But there is one aspect of Musallam's life that is not getting any attention: By any objective definition, he was an Israeli "settler."
Musallam lived in the Jerusalem neighborhood of Neve Yaakov.
Electronic Intifada calls Neve Yaakov "an illegal Jewish-only Israeli settlement in occupied East Jerusalem." Other anti-Israel groups have also characterized Neve Yaakov as "Jewish-only."
Musallam proves that they are lying.
Arabs can and do move into "Jewish-only settlements" like Neve Yaakov, Pisgat Ze'ev and French Hill.
If Musallam was an Israeli citizen living in an "illegal settlement," then he must be one of those fanatic Israeli settlers, right?
But you will not find any critics of Israel demanding that Israeli Muslims who live in those neighborhoods be expelled. No, they only want to ethnically cleanse those neighborhoods of Israeli Jews, not of Israeli Muslims. Which is a textbook definition of antisemitism.
How progressive they are!
See also
There are thousands of Israeli "settlers" that NO ONE condemns!
Ashton apparently only has a problem with Jewish, but not Israeli Arab, "settlers"
UPDATE: TOI says he lived in Beit Hanina. which is an Arab neighborhood across the Green Line.