They don’t work, they don’t fight, they get paid to sit at home and reproduce. Clearly that is unsustainable and will wreak havoc on the Israeli economy if they don’t change course.
Why not tie participantion in the service to suffrage and state benefits eligibility? Make it voluntary still, reduce the amount of civil unrest you'd have to deal with by using force to implement policy. If you are willing to ilsupport the state, you get to participate in its direction and be supported by it. Otherwise you can still work, own property, access to courts, use infrastructure such and roads and public education for your children, but lose out on direct financial assistance, and the ability to directly influence public policy.
You're right, jailing those who won't serve or allowing the state to collapse under the weight of the free rider problem are definitely superior options.