Israel has a modern transportation system including roads and highways, buses, and trains. Private car ownership is less common than in the US (finding a person/family without a car is not unusual and a 2 car family is somewhat unusual). The reason for this is car purchase costs, taxes, and gasoline cost are much higher than in the US. Further, car sizes are uniformly smaller (and correspondingly streets are narrower and parking places tighter).
The country does have an extensive public transportation system of buses (and private transport vans and taxis) that can get you from anywhere to anywhere. There is also a north-south train service along the coastal plain. But the average American will find it to be rather inconvenient (with the exception of New Yorkers who live via public transport).
Car accidents are a major cause of death in Israel and Israeli roads are filled with fearless, impatient, crazy drivers (this includes some bus and truck drivers as well). However, the number of road fatalities per capita is higher in the U.S. than in Israel, largely due to the far greater number of miles driven.
Israel has 2 public bus cooperatives, Eged and Dan bus service. Local bus routes run through most cities and towns and inter-city / inter-town bus service runs country-wide. Additionally, a number of intercity routes have been allocated to private companies (in Modiin and Betar, for example). So it's possible to get from anywhere to anywhere by bus in Israel. The cost is around 4.50 shekel per ride intra-city, 10-50 shekel per ride inter-city (as of October, 1999).
Buses tend to be relatively modern and air conditioned (though the a/c is not always working so great). The driver will often provide entertainment via his personal choice of radio station (though he'll turn it off if you ask), and cranking up the radio for hourly newscasts is a national obsession. The bus is always in a hurry and you will be encouraged (loudly) to get on/off quickly. If a large group of people is getting on it is common to get on quickly and pay after the bus is already in motion (by passing the money up). Israeli bus drivers are quite impressive in their ability to drive quickly and negotiate tight situations (such as parked cars on a narrow street), often bringing the American passenger to cringe, close his eyes or duck behind the seat. (On narrow streets where buses are common drivers will fold back their rear-view mirrors when parking as buses have been known to scrape them off, frequently.)
Private Vans (Sherut) & Taxis
A "sherut" is a multi-passenger taxi-van that normally carries 6-12 passengers. The enterprising Israeli sherut driver often finds busy bus routes not sufficiently serviced by a bus and follows the bus route. If you are waiting for a bus and a van pulls up with the number of the bus route in the window, get right in. Sherut service is usually cheaper (by about 10%), faster (since he carries less passengers he stops less often), and the driver is more accommodating (he'll stop almost anywhere to pick you up or drop you off, not just at a bus stop). Sherut service runs both intra-city and inter-city, but only on busy routes.
Taxi's are available as well and charge a flat rate depending on distance. You can catch a taxi intra-city for 10-40 shekels, however inter-city taxi service can be very expensive (anywhere from 75-250 shekels). Taxi drivers sometimes are courteous (sometimes not), often multi-lingual (they love to try out their bad English on US passengers), and usually are very skilled at getting you from point A to point B as fast as possible (cringing, closing of the eyes and looking down, and use of the seatbelt can be helpful). Seatbelt use is required for front seat passengers. Beware the cabby who doesn't turn on his meter, as the resulting charge can be overly high.
The Israeli train line runs north-south from Nahariya (near the Lebanon border) to Rehovot (south of Tel Aviv) in a more-or-less straight line running along the coastal plain. The train has nice modern European style cars with comfortable seats and tables. Prices start around 15 shekel for one-way between 2 close cities to around 75 shekel for farther distances. While one of the most expensive ways to go, it's the fastest and most comfortable if the train runs along a route you need.
Private Transportation - A Car
Here's everything you need to know in a nutshell:
Buying a Car
Israel charges very high import taxes on cars plus a 17% sales (VAT) tax. The result is that a car in Israel costs twice as much as in the U.S. As a new immigrant there is a special one time tax discount of 100% on the VAT tax and a significant reduction in the import tax (depending on car model and engine size), which results in a car costing only about 20% more than in the U.S. Another option to buying a car locally is to bring one with you. You may only bring a car which is a model year within 4 years of the current year (the car can be no more than 4 years old). Further, it must be a model available locally and after you bring it they may require you to made some "minor" modifications to fit European car standards (example- different intensity of headlights). These modifications can run a couple of thousand dollars to get done (or not, depending on the car).
To buy a car locally is an experience. First, there are small dealer showrooms that might have only 1 or 2 samples of any car made by that manufacturer (forget seeing the specific model you are interested in). The dealer will be happy to order you the car when you have 100% cash in hand. (Some dealers will help or offer financing, some will not.) For info on bank-based financing, see the Banking page.
There is a basic required insurance which runs ~NIS 2,400 per year. This covers basic injury and so forth. Accident & theft insurance runs another ~NIS 4,000 per year. Since car theft is the #1 crime in Israel, having theft insurance (and a really good alarm or 2) is a good idea. Many local companies offer policies, but ask around as getting the company to pay a claim can be problematic.
(still working on it...)