For more details read the ISO 8859-1 HOWTO.
Create a $HOME/.inputrc contain the following:
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set meta-flag On
set convert-meta Off
set output-meta On
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Define the following in the $HOME/.login or /etc/csh.login:
setenv LANG iw_IL.ISO8859-8 (or iw_IL)
Actually because the binary version of tcsh is complied without nls the LANG
can be set to anything and it will still work (no need for /usr/lib/nls...).
The lang. name also shows my Digital bias ...