Is it legal for my Israeli employer to give me time off in lieu instead of overtime pay?

Only if your employment contract or the applicable collective agreement expressly provides for time off in lieu instead of cash payment for overtime. Even then, the compensatory rest must be equivalent in value — one and a quarter to one and a half hours of rest per overtime hour worked, matching the 125%-150% payment formula. An employer who unilaterally substitutes rest time for overtime pay without a contractual basis is in breach of the Hours of Work and Rest Law.