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To take the bus from Cairo to Israel, buy a ticket from Turgomen Garage (metro stop Orabi) to Taba. There are three buses a day, at 6:00am, 9:30am, and 10:15pm, costing 70LE (except the night bus - 80LE) as of 12/2008, run by the East Delta Travel company. You need to buy a ticket at least one day in advance. Once you get to the bus station, someone should know which bus you take - it's not a big bus station. The Turgomen Garage is recently renovated and the buses leave from a concourse in the basement. The signs are all in English and Arabic. Take either the escalator or the elevators downstairs to find your bus. Do not plan for the bus to depart on time.
Once on board, the bus takes about an hour to even leave Cairo and stops at two other suburban bus stations. On leaving, it will be more full than when it left Turgomen, but may be quite empty depending upon the season and economic climate. Note, that there were almost no women, and the few that were there traveled with their husbands. Be warned: the buses are somewhat unreliable. The one I took stopped for an hour by the side of the road, with the engine (and therefore a/c) off, before the driver got back on and we continued. Another traveler said that on a return trip, the bus broke down five times!
Make sure you take food and plenty of water with you, although the bus will make a stop about 3/4 of the way to Taba at a desert roadhouse, where there is a toilet and small cafe. It also stops at various army bases, depending on the bus, to deliver water and newspapers to the soldiers.
On the approach to Taba, the bus will skirt the airport (which has very few flights) and then descend the mountain road for about 15 minutes. It will stop at the bottom and someone will check passports (can be time consuming when many Arab League citizens are on board), then turn left along the coast road. Finally, it will stop at the "Taba Bus Station", a gravel area with a bus office, with bus times in the window. Get off here, the bus continues on from Taba down the coast to Nuweiba. People will try to get you into a taxi to take you to the border, but don't bother unless you have great difficulty walking, as it is literally less than 500m down the road.
At the border, you have to buy an exit stamp from the Egyptian border guards for 2LE (as of 12/2008); they don't always have change if you arrive early in the day. You then walk to the next building, the air conditioned departure hall, where your bags are scanned, then there's a little food / drink / cigarette kiosk, and then the passport control desk, where you give the card with the departure stamp to the border guard. He then stamps your passport, and you are out of Egypt. Beware: if you plan to reenter Egypt at Taba later, you cannot do so unless you already have a multiple entry visa or you get a 51.25 LE reentry visa (just a stamp in your passport) before you leave; Egypt does not issue visas valid for travel outside the Sinai Peninsula upon entry at Taba.
A few yards further on you get to a duty free shop, then the Israeli building, with cool water mist spray coming from the ceiling of the path shade outside. On entry, again your stuff is scanned, then you queue for immigration. Unlike arriving in Israel by air, here you shouldn't be delayed for more than five minutes of questions. They weren't even put off by me saying I didn't know where I was staying, that I'd find somewhere in the town (of Eilat)!
Once you leave the building you are in Israel proper. To change money, there is a bank in the Israeli departure side (where you have to pay a departure tax for leaving Israel, should you exit by this crossing.) There are hourly buses to the town (Line 15, 6.5 NIS), but the last leaves at 18.20. Taxis will be waiting, charging about 35NIS to go to town. Be warned that Israel is more of a Western country, with corresponding prices - ie. much more than Egypt, and marginally more expensive than the UK, for things like eating out.
There are plenty of hostels in Eilat, from the bus station uphill, the 2nd and 3rd streets on the right have plenty advertising dorm beds for $8, but may only have private rooms for between 100 and 150NIS (about £15). Ideally you should book in advance, or go to the bus station and buy a ticket to Jerusalem (I think there are hourly buses taking about 4 1/2 hrs and costing 70NIS or 63 with student discount) or Tel Aviv. The Jerusalem bus, number 444, runs alongside the Dead Sea, so you get to see that, and on leaving the area, you see a sign on the roadside pointing out "Sea Level". And even though this route goes through the West Bank, you see no sign of anything different - no towns, villages, mosques, differences in road signs or markings or anything.
On arrival in Jerusalem, you have to get your luggage scanned when you get off the bus, then once on the street outside the bus station (on Jaffa Rd) you can get a local bus (5.50NIS) to the Old City, or walk the 3km or so (as I did). I stayed in the Petra Hostel, right by Jaffa Gate, which was cheap but rather dirty. I think the term is "has character" - the building has probably been there for centuries. There are many other cheap hostels (around 25 NIS for dorm bed) next to the Damascus gate of the old city. In many hostels you may sleep on the roof deck for a discounted price. Be warned in the old city, that the hagglers are like those in the Cairo bazaar. Ignoring them seems to be the only way.
One word of warning for travelers who regularly visit other Arab states. Some take a dim view of an Israeli visa stamp in the passport and it has been known for some to be refused entry. It is best to check this if you are traveling onwards to some of these more sensitive countries. [Israeli visa issues - check here]