Generally in the areas where the conflict took place Jews favored the Muslim side. The reasoning was fairly simple--even though they were subject to legal disabilities, they'd been living just fine under Muslim rule for some time, but the Crusaders had an anti-Jewish reputation before they even left Europe (Crusading parties attacked Jewish communities in Europe). With the Crusaders there were no such guarantees.

Sources on what exactly the Crusaders did to the Jews is not always clear from the historical record. At the very least, they expelled Jews from some areas, and ransomed Jewish communities in others. This was a convenient way for them to raise money--if they could get the Jews of Egypt to pay an large sum for the safety of their brethren (and sometimes their religious articles too), they could get a significant part of the wealth of the Jews in Egypt without having to actually go there. But not all Jews were ransomed--many were forcibly converted to Christianity or killed. Perhaps the most famous account is the one that's not completely verifiable historically--that the Crusaders gathered the Jews of Jerusalem into a synagogue and set it on fire (many early sources don't mention this, and you'd think they would if they're talking about the conquest of Jerusalem and the atrocities committed by Crusaders, but absence of evidence &c).

In the Medieval era, Jews generally did not participate in the military, so they did not "take up arms" exactly. But there are accounts of Jews participating militarily in the defense of the city they lived in, that is, defense against the Crusaders.