The loss ended a series of four fairytale victories over Korea, Taipei, the Netherlands (in the final 16 group stage) and Cuba in the first of three matches in the round robin quarter-final group.
Israel is ranked 41 in the world while all four teams that it has beaten are in the top 10, making it the surprise underdogs of the tournament so far.
They were outplayed by the Netherlands who raced into a 10-0 lead by the fourth innings.
Israel scored runs in the fourth and eighth innings but it was too little too late as the Dutch piled on misery with two late runs.
Israel now need victory against the world's top-ranked team Japan on their home turf at the Tokyo Dome on Wednesday.