The online magazine Salon has an article about neo-Nazis in the US military. This link is to page three of the article, which deals specifically with racism against Arabs.
[The FBI] found multiple examples of white supremacist recruitment among active military, including a period in 2003 when six active duty soldiers at Fort Riley, members of the Aryan Nation, were recruiting their Army colleagues and even serving as the Aryan Nation’s point of contact for the state of Kansas.
One white supremacist soldier, James Douglas Ross, a military intelligence officer stationed at Fort Bragg, was given a bad conduct discharge from the Army when he was caught trying to mail a submachine gun from Iraq to his father’s home in Spokane, Wash. Military police found a cache of white supremacist paraphernalia and several weapons hidden behind ceiling tiles in Ross’ military quarters. After his discharge, a Spokane County deputy sheriff saw Ross passing out fliers for the neo-Nazi National Alliance.
Rooting out extremists is difficult because racism pervades the military, according to soldiers. They say troops throughout the Middle East use derogatory terms like “hajji” or “sand nigger” to define Arab insurgents and often the Arab population itself.
Racism was rampant,” recalls vet Michael Prysner, who served in Iraq in 2003 and 2004 as part of the 173rd Airborne Brigade. “All of command, everywhere, it was completely ingrained in the consciousness of every soldier. I’ve heard top generals refer to the Iraq people as ‘hajjis.’ The anti-Arab racism came from the brass. It came from the top. And everything was justified because they weren’t considered people.”
Another vet, Michael Totten, who served in Iraq with the 101st Airborne in 2003 and 2004, says, “It wouldn’t stand out if you said ‘sand niggers,’ even if you aren’t a neo-Nazi.” Totten says his perspective has changed in the intervening years, but “at the time, I used the words ‘sand nigger.’ I didn’t consider ‘hajji’ to be derogatory.”
Geoffrey Millard, an organizer for Iraq Veterans Against the War, served in Iraq for 13 months, beginning in 2004, as part of the 42nd Infantry Division. He recalls Gen. George Casey, who served as the commander in Iraq from 2004 to 2007, addressing a briefing he attended in the summer of 2005 at Forward Operating Base, outside Tikrit. “As he walked past, he was talking about some incident that had just happened, and he was talking about how ‘these stupid fucking hajjis couldn’t figure shit out.’ And I’m just like, Are you kidding me? This is Gen. Casey, the highest-ranking guy in Iraq, referring to the Iraqi people as ‘fucking hajjis.'” (A spokesperson for Casey, now the Army Chief of Staff, said the general “did not make this statement.”)
“The military is attractive to white supremacists,” Millard says, “because the war itself is racist.”
Update: meant to include this in the original post. Of course you probably noticed before I did the irony of kicking out good soldiers for being homosexual while recruiting extremists. But I imagine there are units and commanders who turn a blind eye to homosexuality, so that’s something.