No matter which option you choose, the agent you check in with should be able to tag your bags all the way to your final destination.

As far as seat selection on LH, none is possible on LH Y short haul unless LH SEN/HON, but I don't think that TLV is not considered short haul right now. You should be able to pre-assign seats, so pick what you like. The flight number you book has no bearing on that. A bunch of rows at the front and exit rows are blocked for SEN/HON and full fare and are only available at check in for everyone else.