Additionally they already own the Merkava. Altering the existing inventory would cost a fraction of the price of the new Stryker. Its just as well, the US taxpayer would end up footing the bill for Isreal to get the Stryker one way or another.
http://ragingbull.lycos.com/mboard/boards.cgi?board=FRCP&read=33692
If memory serves, the Israelis rejected the original version of the Bradley as well, for similar reasons.
I would imagine a Merkava-based APC/IFV would have fairly high maintenance cost (all that heavy tank armor and the damage-prone engine/tranny set up). But the crews should be able to survive a frontal hit from just about any RPG/ATGM out there.
Sounds like another example of Israeli ingenuity and common sense in defense matters.
Israel has always made Main Battle Tanks (MBTs) have the ability to carry troops. They modified M-60s to do this too.
I think track based vehicles is better fit for the environment than Strykers and believe Israel did the correct thing. It's not that Stryker is bad, but that it seems that tracked vehicles do better on rough terrain also common in Israel.