Would the inclusion of Queers Against Israeli Apartheid in Pride Week violate Toronto's declaration of a non-discrimination policy? I don't think so.
From the City of Toronto:
On behalf of and with the authority of the organization named below, I hereby declare that this organization adopts and upholds the City of Toronto’s policy statement which prohibits discrimination and harassment and protects the right to be free of hate activity, based on age, ancestry, citizenship, creed (religion), colour, disability, ethnic origin, family status, gender identity, level of literacy, marital status, place of origin, membership in a union or staff association, political affiliation, race, receipt of public assistance, record of offences, sex, sexual orientation or any other personal characteristics by or within the organization.
City of Toronto anti-discrimination policy (pdf)
Would Pride Toronto be violating the declaration if it admitted Queers Against Israeli Apartheid (QuAIA) and let this group use the words "Israel" and "apartheid" together? While there are the words "place of origin," I believe that refers to criticizing individuals or groups or individuals because they come from another country or from another place in Canada. I haven't read or heard anything from QuAIA that made fun of or criticized someone for being Israeli. "Religion" is also in the declaration. That doesn't mean that organizations can't criticize the Roman Catholic church. It means one cannot ridicule someone because of his or her religion. As for Israel, it is a country--not a religion. "Family status" is also listed. Does that mean that no one may criticize the group Focus on the Family?
I think the Pride Week organizers do not want QuAIA to participate in the event, not because QuAIA discriminates against Jews or Israelis (it doesn't), but because of political reasons of possibly losing funding from the City of Toronto. The optics of accusations of anti-Semiticism look bad from the city's point of view.