To more clearly understand the above: The verse1 states: "The L-rd is high above all nations; His glory transcends the heavens." The nations say that G-d is exalted, and argue that dominion over terrestrial beings is therefore a degradation and debasement for Him. Only the heavens are close to Him, they conclude, and only "in the heavens is His glory."
The foundation of this belief lies in their thinking that creation came about through the progressive descent of ilah and olul something which can only occur when the progressive levels are comparable. They therefore maintain that the heavens, which are more spiritual than the earth, are a closer approximation of G-dliness, and so His dominion over them is an honor. The earth and its terrestrial beings, however, are incomparable to Him. G-d therefore they maintain gave over dominion of the earth to the stars and constellations, i.e., the natural forces. These forces of nature, they believe, are G-d's messengers, and through them flow all physical beneficence.
This, then, is what is meant by the verse:2 "And they [the nations] say: 'The L-rd does not see... does not perceive;' " i.e., according to them, G-d does not oversee or take interest in the actions of terrestrial beings. They maintain that G-d is unaware of the good and evil deeds of created beings, for awareness of such things would be degrading to Him.
It is written:3 "He does not look at the iniquities of the Jews." Bilaam the Wicked said G-d does not look at the sins committed by Jews. This is due to His essential love for us, concerning which it is written:4 "Love conceals all iniquities."
This is also the meaning of the verse:5 "He saw transgression and gave it no heed"; His great love for the Jewish people causes our transgressions to be of little consequence. However, when the "righteous scholars among the nations" say that G-d does not understand, they mean it is degrading for G-d to have knowledge of the physical world.
The foundation of this erroneous system lies in the assumption that the world was created through the process of ilah and olul. This is patently false. G-d created the world out of nothingness, as stated in the famous saying:6 "He made that which was not, to be." Fundamental to creation ex nihilo is the concept of incomparability; the created being and its source, the ayin (the nothingness from whence it was created), bear no comparison. However, in the progressive descent of ilah and olul, the two are comparable.
This gives rise to yet another difference between creation ex nihilo and the progression of ilah from olul. Inasmuch as the ilah and olul are comparable, the ilah comes about from the olul as a matter of course. In creation ex nihilo, however, since the two levels are incomparable, creation does not come about as a matter of course, but is a totally new phenomenon.
In summary: The nations of the world say G-d is "exalted" and therefore conclude that knowledge of the physical world and its inhabitants is degrading for Him. Knowledge of the good and evil deeds of terrestrial beings, as well as their supervision is, they say, relegated to the stars and constellations, i.e., to the natural forces. Their mistake lies in thinking that creation came about in a manner of ilah and olul, while in fact it was ex nihilo, which differs from ilah and olulin two major aspects.