London, Beijing, Boston, Tokyo (all places where I have been and interacted with the entrepreneurial community, at least in consumer internet) have nothing on it.
There are naturally downsides to Tel Aviv, which are mentioned below and chief among which is the stupid immigration policy which probably makes it hell for non-Jews to get in to work on a start up.
However, if you can figure out a way to work there, here's what I think Tel Aviv has going for it:
1. High appetite for risk and hunger for success/opportunity among young people. Lots of the best people are technical, and many come from middle class backgrounds.
2. Highly entrepreneurial society/culture.
3. Strong presence of many US Firms, VC and technological (intel, google etc..). Very tight communication lines between the Valley and Israel (many entrepreneurs and investors spend time in both places during the year).
4. Lots of highly skilled engineers and somewhat lower costs (by US standards).
5. A city that never sleeps and has wifi everywhere.
I mean this quite literally. You can go out at 4am to one of Tel Aviv's many cafe/restaurant/bars, order a shot of Jager, a wiener schnitzel with fries and a side salad, and an espresso to top it off, all while enjoying great wi-fi and being only minutes (walking on flat ground!) from the beach (where as opposed to SF, the water is actually warm most of the year). Nobody will even give you a second look.
Try that anywhere but New York City (with its six months of crappy weather) and I guarantee you will want to shoot yourself.
6. Hot weather throughout the year. No need to deal with stupid externalities like snow storms or days where you get SAD because of the weather (see London...).
7. Great research universities.
8. Only hours flight from all major european cities. If you need to fly to London for a day or two, no problem. It would cost you a few hundred dollars - and it's shorter than flying from NYC to SF.
9. Tons of amassed experience in building tech startups.
10. Access to capital.