Here is the official law from the Knesset's website:
http://fs.knesset.gov.il/%5C18%5Claw...lsr_301013.pdf
The quoted clause:
Basically, the airline is off the hook if the cancellation was outside their control do to extraordinary events and there's nothing they could have done to prevent it (not really the case here) OR was due to a strike or similar.
They claim that both Provision 1 and Provision 2 apply here, getting them off the hook.
Note, I am NOT a lawyer, but I am a Jew
Provision 1 doesn't seem to apply, as that is generally reserved for an act of God. They could have done more to find alternative pilots, lease planes, agree to demands, etc.
Provision 2 may apply. However, the pilots never called a formal strike. This was a slowdown, an unofficial work stoppage, not a strike sanctioned by the Histadrut or the Labor Court.
If you're not satisfied, I recommend filing complaints with EL AL (re-escalate the issue) as well as the Consumer Protection Council, and maybe look at a law firm that specializes in this. This one (
http://rotbaumlaw.com/2013/12/%D7%A2...9%D7%A1%D7%94/) consistently comes up when discussing the Tibi Law and related benefits