It appears to me, based on the print you included, that the quotation marks are not included in the italics, so I would put the italic indicators inside the quote marks. However, if the quotes ARE obviously included in the italics, the indicators can enclose the whole thing. Either way is OK according to UEB rules. If the book is inconsistent in the way this is handled, I would treat them all consistently…pick one way and do them all the same.
Cindi