The 11 crew members took to life rafts, an official from Israel's Port Authority told Israel Radio, and were rescued.
The vessel had been carrying 3,000 tons of iron, and sent out a 'Mayday' call when it was about 16 kilometres from the southern port of Ashdod.
The Moldovan ship was carrying iron to the Ashdod Port when it was caught in 65 mile-per-hour winds and 30-foot waves. The captain reported water entering the ship, and many of the sailors jumped into the sea to escape the sinking vessel.
A Taiwanese ship that was passing by also helped in the rescue operation.
The tempest also caused a Turkish ship to run aground near Ashdod, but tugboats managed to later tow it into port.
The storm, which broke out Friday after a hot summer and dry autumn, saw winds of 100 kilometres per hour and waves reaching heights of 10 metres.
Ben Gurion Airport, Israel's international air terminal south- east of Tel Aviv, temporarily halted operations because of poor visibility, and Haifa port, in the north, was also closed.
Various regions in the country suffered power blackouts due to rain, lightning and trees and branches falling on power cables.