While the Merkava tank has excellent overwatch and MOUT capabilities, there is just no way to replace a good AFV. AFVs are highly mobile, can be retrofitted with a variety of weapons (see: M6 Bradley Linebacker SFV and FIST M7 Bradley). They are excellent in maneuver warfare and are unpredictable (it is hard to assess which IFV has MANPADs or personnel ATGMs). It is the U.S. Army SOP to send the BFV in before the tanks in city warfare, and it has proved successful, insofar as to demand faster and better AFVs like the Stryker.
That said, I don’t have the slightest idea why Israel doesn’t have AFVs. The tactic of combined arms is a successful one.