A neighboring country to Israel has this tax law.
Recognized religious institutions and clergy, including all government-recognized Muslim, Jewish, and Christian organizations, received free utilities and were exempt from real estate taxes on religious buildings and personal property taxes on their official vehicles.
Before 1918 much of the land “owned” by Christians was conveyed to the Greek Orthodox Church, to protect it from seizure by the Ottomans. The church had some protection from foreign powers (Greece and Russia). Thus the church became a major landholder, in name only.
Since selling land to a Jew later carried with it a death penalty (Jordan), “owners” would let the church front for them; sell the land as if it were church property; and after a complex process through many intermediaries, it could become Jewish-owned, with the original owner protected.
Because of these factors, gaining clear legal title to land is complex, and sometimes carries with it both financial and physical risks.
It is also even possible that some church ownership of property may still be a “cover” for other owners, and if so, these others would benefit from the tax-free status.
I would hate to be a title insurance co. in Israel...