The Israely cellular market has undergone deep changes since this thread was updated more than a year ago. Several MVNO's and two MNO's started operating, introducing very cheap packages. Unfortunately for visitors from abroad, except one MVNO (Rami Levi) all new plans are postpaid and require an Israeli credit card. The three "old" companies (Pelephone, Cellcom and Orange, did not change their (high) prepaid rates. I suggest that you run a search in this forum, I posted several updates.
If you need a prepaid SIM buy a Rami-Levy card - the card will cost NIS 39, there is a monthly fee on NIS 4.90 as long as your balance is positive. Voice calls are NIS 0.39/min (1/1 second debit), SMS 0.29, data NIS 0.39/MB. a 5 GB data package costs NIS 69 and a 10 GB NIS 99, valid for 1 month.
The problem with Rami Levy is that the SIM cards and top ups can be purchased only at the chain's supermarkets, mostly in suburban shopping areas and a handful other networks such as the Ivory computer stores.
If you can buy a postpaid SIM (with the help of an Israeli friend, an Israeli credit card is required) I suggest that you get a
HOT-mobile or
Golan Telecom SIM - a NIS 99/month plan will provide you with unlimited calls inside Israel an to landlines in about 30 countries including Germany, and 3GB of data. Golan will be easier to deactivate when you leave, using an excellent web site (although they will call you to confirm), while disconnecting from HOT can be done only through their awful customer service. 012mobile, Orange's cheap brand, has a similar plan but with only 1 GB, and the Orange data network appears to be the slowest data network in the country.
As to handsets - all Israeli 3G networks are based the European 2100 band. However, the Pelephone and Cellcom networks, an as result also HOT, Golan and Rami-Levy, use also the 850 MHz band, so a hanset supporting both bands is rcommended althuogh a 2100 set may be sufficient in the populated areas.