Michael O'Neill made six changes in Tel Aviv and was rewarded with an encouraging second-half performance.
Toulouse striker Eden Ben Basat netted the opening goal in the 43rd minute at the Ramat Gan Stadium, heading home a right-wing cross from Eyal Meshumar.
Before Israel scored, Martin Paterson appealed in vain for a penalty while substitute Chris Brunt, who replaced the injured Corry Evans after 24 minutes, fired a shot over the crossbar when well placed.
After the break, home goalkeeper Dudu Aouate had to be alert to push a Steven Davis effort around the post.
But the Irish captain was not to be denied a few minutes later, as he latched onto a Jamie Ward pass and fired a superb shot past Aouate from the edge of the box for his first international goal since October 2011.
The result means O'Neill's side finish fifth in the six-team group, having taken seven points from 10 games, one more than bottom-placed Luxembourg who lost 3-0 in Portugal. Russia could only draw 1-1 in Azerbaijan but that point was enough to confirm as Group F winners.
With Jonny Evans, Gareth McAuley and Oliver Norwood all suspended, O'Neill had to alter his starting line-up - but he also chose to drop Shane Ferguson, Chris Brunt and Jamie Ward to the bench.
Bradford defender Rory McArdle made his first competitive start, playing at centre-back, while Daniel Lafferty, Chris Baird, Sammy Clingan, Corry Evans and Niall McGinn were also included.
Northern Ireland's early strategy involved balls over the top for Paterson, who made a half-hearted penalty appeal after nine minutes when Aouate challenged him for Baird's chipped pass.
In the 19th minute, Corry Evans crumpled after both he and Sheran Yeini slid to retrieve a loose ball, making way for Brunt's belated arrival.
He had been on the pitch a matter of minutes when he collected Davis' lay-off and shot a yard over from outside the area.
Israel began to assert their authority, with Meshumar proving a constant threat down the right - and it was his cross that allowed Ben Basat to head home from eight yards.
Roy Carroll was rightly upset to see the striker nip between both centre-halves in order to do so.
In the second half, Davis - playing in an attacking midfield role - attempted to supply some spark when he shook off Sheran Yeini and let fly but his shot flew just wide after a slight deflection.
Ward replaced the quiet McGinn with 25 minutes remaining and instantly brought some energy to proceedings.
The equaliser came after O'Neill had gone back to 3-5-2, Clingan putting a foot in to regain possession and begin a new attack.
Ward spotted the well-placed Davis arriving at the edge of the area and he buried a first-time that was left Aouate grasping at air.
Northern Ireland were energised, Ward shooting wide seconds after the restart and Paterson's volley beaten clear by the goalkeeper following Brunt's clever chip. It was a wonderful chance but Aouate's reflexes matched the finish.
Lee Hodson, given licence to attack now, hesitated when Davis' header seemed to put him clear on the right and from there on, Israel were in the ascendancy.
They camped out in Northern Ireland's final third but a series of tackles, blocks and clearances ensured a deserved point.