I am not an expert in this but I would suggest giving the book "The German-Jewish Soldiers of the First World War in History and Memory" by Tim Grady a read.

A few choice pieces of information, firstly German anti-semitism was already developing during the WW1. There was actually a census taking of Jews serving ordered by the War Minister, Adolf Wild von Hohenborn, in 1916 because it was believed that the German Jews were did not support the cause.

This developed into the "Dolchstoss Legende", essentially that the Jews had been responsible for the revolution against the Kaiser and undermining the morale of the army. So the opinion of Jewish ex-servicemen was tainted, with many believing that Jewish veterans were actually responsible for the German loss of WW1.

This manifested itself in the removal of Jewish names from War memorials, as at Heilbronn under an edict from Goebels in 1935, and the expulsion of Jewish veterans from the the major German ex-servicemen's group, the Kyffhäuserbund in 1933.

While this nationalist viewpoint was initially countered by the more conservative approach of the President Paul von Hindenburg, his death in 1934 left the Nazi propaganda machine to go to town. Alongside this official anti-semitic viewpoint though there is evidence that public opinion was less aggressive. For example protests by Aryan veterans about the non inclusion of their Jewish comrades on unfinished war memorials and the fact that the Jewish section of the Hamburg military cemetery was maintained throughout ww2.

It's interesting that although protection for Jewish veterans essentially ended early in the Nazi regime, with the death of Hindenburg, the promulgation of the Nuremberg laws, and the banninng of the Reichsbund jüdischer Frontsoldaten, as late as 1942 there was still clearly discomfort among even the most ardent antisemites was sufficient to see different treatment for Iron Cross recipients discussed at the Wannsee Conference, where the Final Solution was formally planned:

SS-Obergruppenführer Heydrich went on to say that an important prerequisite for the evacuation as such is the exact definition of the persons involved.

It is not intended to evacuate Jews over 65 years old, but to send them to an old-age ghetto - Theresienstadt is being considered for this purpose.

In addition to these age groups - of the approximately 280,000 Jews in Germany proper and Austria on 31 October 1941, approximately 30% are over 65 years old - severely wounded veterans and Jews with war decorations (Iron Cross I) will be accepted in the old-age ghettos. With this expedient solution, in one fell swoop many interventions will be prevented.

Translated Minutes from the Wannsee Conference

It's really important to remember when discussing Jewish policy in Nazi Germany that things changed a lot, and often very quickly. The policy on Jewish veterans changed several times over the course of the regime, and especially during the course of the war. As an example, in the Wannsee Protocol veterans of WWI were to be "accepted" in the old age ghettos, but by the end of the war some of these old age ghettos were being "evacuated" no matter who was in them. That's not the best example because of the problems with the Wannsee Protocol, but nonetheless, policy changed frequently and for a wide variety of reasons in the Third Reich, and this is definitely true in regards to the treatment of veterans.

Ernst Hess was one of Hitler's commanders during WW1 and was Jewish. He was protected by Hitler and he even helped his family briefly. His sister was still sent to a concentration camp eventually. Hess was in danger at times but for the most part, Hitler was the reason he survived WW2. Hitler had a word for Jewish people, like the Jewish Dr who cared for his family when he was a child, but I can't remember the phrase. It was Noble Jew or something along those lines. He considered them 'better' and spared them from the SS as long as he could.

For some reason, this act of mercy disturbs me even more.

For the life of me I can't find my binder with my loose-leaf literature, in the process of moving.

However, there is a diary collection out there of a Jewish man (who was at least alive during WW1, I feel like he said he served, but I may just be making that up since this reminds me of the situation) named Klemperer, and he chose to stay in Germany with the rise of the Nazis.

He was fairly old at this point, and his wife was a full-blooded German. He was a literature teacher at the local University. He had a nice a house in a nice neighborhood. Basically, he had a lot in Germany to leave behind. And at first, everything was fine. His wife was German, he wasn't a practicing Jew anymore, and life was uneasy but quite good.

However, as the war wore on, he was stripped of his teaching post for being an ethnic Jew. Ok no super huge deal, there are other jobs, right? So he gets by. He pretty much makes it right up until the end of the war, when they are finally making the call to remove ALL Jews regardless of service to the community, Germanness, religious status, etc. It's also fairly conveniently the time his city explodes, so he never ends up going to the camp.

The point being, there were exceptions made for Jews that sort of "made up" for their Jewishness by marrying Germans, serving in the army, and all those nice things. However, those privileges eroded slowly over the course of WW2, and many found themselves facing certain doom.

This was actually discussed during the Wannsee Conference (the meeting of about 15 high ranking Nazi officers about the Final Solution).

Heydrich stated that Jews over 65 years old, and Jewish World War I veterans who had been severely wounded or who had won the Iron Cross, would be sent to Theresienstadt concentration camp.

No special treatment was given.

Most were kicked out of the military and had their commission revoked. Some higher ups like Franz Haber; the inventor of Mustard Gas, Nitrogen fertilizer and Zyklon A, stayed on till they couldn't stand it anymore and left.

Helmut Newton's father was a WW1 veteran and he discusses the fact that his father, an ethnic Jew but not much of a practicing, was replaced at the factory the family owned and his father operated by an Aryan. He addresses all of this and more in his autobiography.

Jewish veterans were given some special privileges even after the Nuremberg laws were passed in 1935. As late as January of 1942, at the Wannsee Conference, there was even discussion of abandoning the distinction for Jewish veterans of World War I, something that Wilhelm Stuckart, one of the co-authors of the Nuremberg Laws was quite unhappy about.

The oldest veterans of World War I were to be sent to the "model" camp Theresienstadt to die there, while I believe others were simply sent to camps after Wannsee.

But there were exceptions. Even Hitler protected a Jewish officer he knew from World War I. There is another one, Hugo Gutmann, mentioned on wikipedia, but I am not too keen on the sources surrounding that particular article.

This is a pretty specific case, but in the Maus series of books (I remember his last name was Spiegelman) which is a graphic novel about a man's father's experience in various concentration camps, his father recalls an instance of a fellow Jewish prisoner crying out that he was a WWI veteran who fought for Germany and had medals from the kaiser. Whether or not that man was telling the truth is another matter. No matter if it was true or not, it seems to suggest that people believed it would result in preferential treatment.

Here is a good reference; http://history.stackexchange.com/questions/11733/treatment-of-jewish-wwi-veterans

For a short time at the start of the Nazi reign jewish veterans where treated slightly better than other jews. For example when by the Law for the Restoration of the Professional Civil Service (Gesetz zur Wiederherstellung des Berufsbeamtentums) jewish civil servants where expelled from state service veterans or those you had lost close blood relatives in WW I where exempt from the law (The "Frontkämpferprivileg" was required by the german president Hindenburg, a retired general, before he would agree to sign the law). The Nazis where quite annoyed when it turned out that almost half of the jewish civil servants where veterans and could keep their job - so naturally this was followed by a few more laws that ended the veterans privileges.

The camp in Theresienstadt mentioned in another answer was (while perhaps a little less unbearable than other concentration camps and less deadly than the extermination camps) was to some extent a propaganda effort. Veterans, old (jewish) people and other "special jews" where deported to Theresienstadt. Part of the camp was cleaned up as a stage for a propaganda movie to show the world that reports about bad treatment for jews where exaggerated. However the fact that some 35 000 people (afaik about 25% of the camp population) was murdered demonstrates that towards the end of WW II there was no special treatment for veterans, or anybody else.