In the macro (i.e. our worldly interactions), we should keep the same principle in mind - but only to a point. There is an obvious double-standard when it comes to how Jews in general, and Israel in particular, are treated by the "international community." For example, the United Nations has a long history of biased resolutions against Israel. Whether they're condemning the flotilla response or just using the old "occupation" critique, the only true occupation is the world's preoccupation with Israel. Therefore, it would be counterproductive at best - and suicidal at worst - for Israel to overly concern itself with what the world wants. Although it can be difficult at times, Israel must do its best to ignore the incredible amount of scrutiny placed upon it and simply protect itself.
In ancient times, when Moses sent spies to scout the land, the spies reported back that the people who inhabited it were giants. Furthermore, they claimed to be like grasshoppers in their eyes (Numbers 13:33). According to the Rebbe of Kotzk, the spies' inordinate amount of concern for how others viewed them was the root of their sin. Instead of concerning themselves solely with their divine mission, they cared about how they were perceived by the giants. The lesson we can draw from this is that while we must always be ethical, law-abiding individuals, there must also be a keen awareness that we don't ultimately answer to a government institution or the United Nations. We are accountable for all our actions to God alone.
Whenever possible, we must uphold both the highest ethical standards and clearly display what we are doing to others. However, as long as what we are doing is just and right, we can't care about what other people think. As mentioned above, this is especially the case with regard to Israel's security. If it were up to the world-at-large to determine the best course of defense for Israel, there would be no more Israel. Therefore, while it's enticing to care about good publicity, it's more important to care about good deeds.
As the famous Psalm goes, "wisdom begins with fear of God" (Psalms 111:10); notice how it doesn't talk about fearing human beings. We simply have to find the delicate balance between being a good example in public and, at the same time, not drive ourselves crazy with how others might misinterpret what we are doing. Popularity is fine, but it can't be the highest value. God-based goodness must always be of greater concern.
In other words, whenever there is a conflict between what other people think of you and what God thinks of you, choose God.