Subjective, but not arbitrary. Here’s the relevant sections of EO13224 (linked above):
…may designate foreign individuals or entities that he determines have committed, or pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the U.S.;
…
For the purpose of the Order, “terrorism” is defined to be an activity that (1) involves a violent act or an act dangerous to human life, property, or infrastructure; and (2) appears to be intended to intimidate or coerce a civilian population; to influence the policy of a government by intimidation or coercion; or to affect the conduct of a government by mass destruction, assassination, kidnapping, or hostage-taking.
There are 8 US citizens still held hostage by Hamas in Gaza - which means they meet the criteria of both 1 and 2. That’s without opening up any other accusations of terrorism.