I just spent the past weekend in Dahab, and dove with Posiedon. They had a decent operation, but there are so many DCs I think it would be hard to find a bad one. I would just stay away from any that are totally staffed by locals.
For a hotel, I was told the Dahab Hilton is nice, but I was only looking for a room with and aircon.
Also, I was told that due to the elevation of the road back to Taba, that I needed to wait six hours before leaving. I think that was overly consertative, and I am currently looking at some of the altitude tables to come up with a better (more acurate) solution.
Honestly, I wasn't that impressed with the diving in Dahab. However, I will make a return trip at some point to confirm or refute that impression.
With that said, if you are coming from Israel and only have a few days, I would recommend just crossing over to Taba and doing a couple of days diving there. I have been there twice (3 dives each time) and thought it was very good.