Although Charlie Mulgrew gave the visitors the lead from the penalty spot in Hafia, Dor Peretz equalised for the home side and a Kieran Tierney own goal condemned Scotland to defeat against a side ranked 94th in the world.
Booed off by 1,500 traveling fans who had no doubt paid a great deal of money to see their team play, the result was a low point for former Birmingham boss McLeish.
'I've had a few setbacks in my career, but also a few probably more really good moments and that's what we have to focus on.
''We were under the cosh admittedly, but we will look at the game and analyse it and try to put it right.
''It could have been worse, there were a lot of shots from distance.
'I think we were reasonably comfortable in the first half. We were going for a second goal. We had a couple of chances at 2-1 down but didn't take them. We would be talking about a different game - but it's doom and gloom. We have to take the consequences of that.
'Israel deserved to win tonight on the second-half performance.
'We could have gone down 3-1, but the reason that would have happened was we were trying to get an equaliser.'