It reacted with cautious optimism.

Broadly speaking, Israel at a political level did not really oppose the idea of German reunification. Israel's enemies were supported by the Soviet Union, and reunification was part of the disintegration of the Soviet Union, weakening a key enemy.

At the same time, Israel was wary. One of the main reasons was a fear that a newly unified Germany might once again turn towards nationalism, war, and reignite antisemitism. Even back in 1989, news articles (and Israeli leaders) were acknowledging this fear. As Yitzhak Shamir, Israel's Prime Minister, put it:

In an interview on Israel television late Sunday night, Prime Minister Yitzhak Shamir said he foresees ″wide changes that will certainly alter the map of the world very soon.″

″Of course, when we are speaking about Germany there is something the Jewish nation has to say,″ added Shamir, whose family was killed in the Nazi Holocaust. ″There are certain sensitivities and for us it is a most serious problem.″

This was echoed by Shimon Peres, further down the article:

Vice Premier Shimon Peres, who immigrated to Israel from Poland during the rise of Nazi power in the 1930s, raised questions about Germany’s future in a television interview Sunday.

″On the one hand, what is happening there brings forth great hope. On the other hand, no one among us is free of the memories of the second World War,″ Peres said.

″When we hear of a united Germany, we must ask what kind of a Germany it will be? A Germany with an army, without an army? A demilitarized Germany, a undemilitarized Germany?″

This dichotomy meant a generally cautious optimism. It was shared by many Holocaust survivors, and Jews generally, including Elie Wiesel. Israel was not the only country to express such fears, but Israel obviously had more trepidation than most. As I said, Israel was also perfectly happy to watch an enemy be brought under the wing of the West, which was far more friendly to Israel and to Jews of course.

Happy to expand on any of this if necessary! Not sure what more to say based on what you're looking for.