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From the Misrad HaHutz (Ministry of Foreign Affairs):
Acquisition of Nationality by Birth is granted to… Persons born outside Israel, if their father or mother holds Israeli citizenship… (boldface in the original)

A careful reading of this indicates to me that your wife is not now an Israeli citizen, but must become one when she settles in Israel.

It says -
"Acquisition of Israeli Nationality

Israel's Nationality Law relates to anyone wishing to settle in Israel, as well as those already residing or born there..."

In other words, once she declares her wish to settle in Israel she is considered an Israeli citizen, because her father was a citizen.

Conversely, if someone has an Israeli parent but does not wish to settle in Israel, he is not an Israeli citizen.

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