This is really the crux of the matter. I suppose there are two ways of defining God.
One is to say God is a being just like us, only more expansive and powerful. That's the earliest conception of godhood that is shared by all theistic cultures. In that case maybe this particular god is a morally upstanding fellow, as divinities go (assuming that a lot of rumors we've heard about him aren't strictly true), but he's also subject to more or less the same rules of logic and basic natural laws that we are, which would meant that he couldn't have created them—the very act of creation requires the preexistence of certain rules and assumptions, after all. So maybe he's good, but he's not the source of good or definition of good, just a manifestation of it. And if he's just a being, then he didn't create all things (such as the very concept of "being," or whatever it is he's made of).
Another is to say God is the ground of all being, the fundamental reality that makes our very concept of "being" possible—not literally the creator except in the metaphorical sense, but the source, the substrate, the hypostasis. And we put a human face on that reality because that's what we know, even though it's not really a person on our level, but rather we are the human face of God. In that sense God would be the source of all things, good and ill, while at the same time not being morally culpable one way or the other. This view of God accounts for God as the ultimate reality behind all phenomena but doesn't really allow for benevolence, as that's a quality that individual beings within the world have.
I think you are depicting a theological dichotomy (if not a number of theological elements) foreign to Jewish thought.
For us, part of what makes God God is that-- being the embodiment of paradox-- He is simultaneously both ineffable and transcendant
and also personal and immanent. In other words, God is both the Source of all being and outside all time and space, and also an actor within history and time.
No school of Jewish thought-- at least for the past couple millennia or so-- have thought God to be "a being just like us, only more expansive and powerful." Not anymore than we have thought that God is subject to the same natural laws that the universe is bound by, since we understand those laws to be of God's creation, and God to precede the universe. Our scholars have seen no reason why God-- preceding the universe, and being omnipotent, omniscient, etc.-- would require rules and assumptions based in this universe in order to exist or to create this universe.
While there are some schools of Kabbalah (Jewish esoteric mysticism) that postulate God as an ultimate reality, and all created things as illusory phenomena clouding our view of the truth of ultimate unity. But that is not actually a popular view, even in Kabbalistic circles. For the most part, we understand that God is real, and what He creates is real.
Then there's the fact that the traditional meaning of "evil" (and the words that get translated that way) is anything that is unfavorable, unpleasant, noxious, etc. It's not restricted to moral evil, which is just one example of something that is those things. So it's not terribly controversial that if we posit a God that is responsible for the universe and all its splendors, that God is equally responsible for the hurricanes, fleas, intestinal worms, and gangrene. That's what Isaiah is getting at. It's also what the fruit of the tree in the Eden myth represents: the ability to discern what is favorable and what is unfavorable, in the human (and divine) sense. It's not that unfavorable things aren't native to the world, so much as that humans had to develop sapience before we could reflect on them and recognize them as deviations from an ideal (and work to change them).
So why do natural disasters and diseases and such exist (i.e. the original "problem of evil")? Well, it's our capacity to know good and evil that even allows us to ask that question. Other animals don't. They suffer but don't know why and don't have the capacity to imagine things otherwise. That's why moral evil is a uniquely human thing. Animals do horrible things to each other, but they don't really have the capacity to change. Humans do horrible things to each other, but we also have the godlike capacity to know and do better. So what does that have to do with God? Well, that's the question, but some would answer that moral good involves tapping into our true nature beneath the surface, recognizing a deeper reality than the blind animal struggle that so often obscures it—seeing the face of God, if you will—whereas moral evil just further blinds us to the truth and keeps us occupied with illusions and trivialities. In that sense God can be the source of all of our pleasures and pains, while at the same time moral goodness is an important key to the path of realizing the truth of God.
Generally speaking, when Isaiah describes God as creating evil; or when Genesis describes human beings eating the fruit of the tree of the knowledge of good and evil; we have most often understood that to be describing God's creation of human beings with free will, and the realization by humanity of their own free will. True evil requires intent, requires malice aforethought, and thus requires free will. Most natural phenomena that people have labelled evil in the past are not, in fact, evil, they are simply natural phenomena whose interactions with human beings produce unfortunate results for us.
Obviously, as the Source of all things, God is responsible for the existence of phenomena we find unfortunate or inconvenient or traumatic. These tend to be the result of the natural processes by which God causes the universe to exist: chaos, entropy, evolution and natural selection, etc. But in part, what Isaiah seems to be reminding us is that God is ultimately in some part or sense responsible for evil acts done by people to one another, since God deliberately created us with free will, knowing that we would often abuse it before we learned to master it (as we have yet to do), and that such abuse would be at the cost of other people's comfort or well-being or even lives.
The question many of us have, which will almost certainly remain unanswered, is
why God chose to make this decision: what is the value of free will that would cause God to set its importance above so much inevitable suffering? We know no way to truly and effectively justify human suffering: some of us speculate that perhaps there is no justification, others strive to find potential justifications. But in the end, we hope that God knows, and has some explanation He can give us.
