Feliciano Lopez and Tommy Robredo beat Jonathan Erlich and Andy Ram 7-6 (6), 6-7 (7), 6-4, 6-2. Spain won all three of its opening matches to secure a place in its seventh final overall.
Spain will play the Czech Republic in the December final.
"To be in the finals two years running is incredible," Robredo said.
With injured Rafael Nadal and Fernando Verdasco cheering them on, Lopez and Robredo won in front of a large crowd at the Torre Pacheco tennis club.
Israel reached the semifinals in March after an emotional victory over Sweden, when Malmo officials didn't allow spectators against a backdrop of anti-Israel protests.
The Czechs beat Croatia 3-0 in the other semifinal on Saturday.
Last year, Spain defeated Argentina to win the Davis Cup title.
Raul backs Real rotationSpain leads Israel 2-0 in Davis Cup
