There is maybe a case for 2.5%, mostly eliminating total "joke" parties but enabling all non-negligible elements of the electorate to get some representation.
I think a better idea - especially given Israel's peculiar social geography - would be to have all MKs elected from multi-seat geographical constituencies. You have both a somewhat more stable (in theory...) Knesset and something close to guaranteed representation (without need for pacts or tactical voting ploys) for most non-negligible elements in the most Kaleidoscopic of societies. Would also encourage stronger party structures and make it possible for the odd independent to get in if there's a particular local issue here or there, neither of which would be bad things. Not that it'll happen.
One particular issue in Israel is the political need to keep the voting system accessible to illiterate voters (like in India, albeit for different reasons there). The only country I can think of offhand with substantial illiteracy and an electoral system where voters don't just pick one option is Papua New Guinea, and it doesn't seem like that works very well.