Steve Clarke's side, who qualified for the play-offs thanks to their performance in the UEFA Nations League, will play the Israelis at Hampden on March 26.
The draw, conducted in Nyon on Friday morning, paired Scotland with the nation that finished fifth in Group G. Other potential opponents included Bulgaria, Hungary and Romania.
Should Scotland get past Israel at the national stadium in Glasgow, they face a trip to Norway or Serbia, who contest the other semi-final.
Speaking after the draw in Nyon this morning, Clarke said: “We are looking forward to the home semi-final against Israel in what is a hugely exciting challenge for us with a massive reward.
"The players know Israel well having faced them in the Nations League. It was a tough match over there but we showed our capabilities with a good win at Hampden last year.
“This is the time to believe. We have just finished what was a difficult campaign, having experienced a turbulent few years for players, fans and managers alike.
"It’s now time to channel the positivity following our recent results and focus on the semi-final in March first and foremost.”
He added: “We have three wins in a row and the benefit of momentum. We need to channel that positivity and focus on the many attributes we have. To have more than 50,000 people cheering us on at Hampden for the semi-final and the whole country watching at home is something that really excites me and will only serve as further inspiration to the players.
“We want to be active participants at Euro 2020, not just hosts, and we will give our all in what I believe will be two games.
"The Scotland fans always travel in their numbers and I hope they will do so once again if we were to reach the final, but for the moment our focus will be on the semi-final first and foremost."
Scotland have a very real chance of being paired with England, France and Portugal if they reach the finals, but could also come up against the Czech Republic and Poland as well as the English.
The two countries are guaranteed to be in the same group - Group D - due to Hampden and Wembley being a host pairing.