Is in my mind, protected under the 1st Amendment. If the group starts to chant "Kill all the Fucking Jews" is that allowed?

It only becomes illegal when you start saying, "Kill all the jews! Let's go kill that fucking Jew on 1234 Jew St. tonight at 8pm! Burn his house down." That is inciting among other things. Letting people know you don't like someone (or a group of someones) is not against the law. Commanding a lynch mob is.

should the police break that up before that group preforms an illegal act?

The police should be there to do there job: prevent violence, protect citizens from harm, and protect their right to assembly. It's more complicated with municipal permits as to who should be where, but that's on the city not the cops. Cops failing to step up to this task is not uncommon. "Letting it burn itself out" seems to be a fairly common mind set from departments who are either unable or unwilling to maintain the peace. UC Berkeley and the LA riots both come to mind, with the latter on a much grander scale. It's a simple failure to police and it gets people killed. I feel for the cops, because they lose no matter whose face with a baton stuck to it is on the newspaper. Still, PR is no excuse to not to do their jobs. It's irresponsible to host rallies knowing there may be conflict and then renege on their duty to protect-- which is what I assume happened at Berkeley.

In this political climate cities and police departments should be preparing and planning for such situations. If a city is hosting a counter protest and protest, like Charlottesville, then they need to pool enough resources to maintain the peace.