A quasi-governmental selection committee said on Sunday they hoped deployment, which will use Cisco's technology, could begin in six months.
"All citizens of Israel will enjoy very fast Internet speeds, which could be a significant growth engine for Israel's economy," said Roni Friedman, acting director of the Government Companies Authority in the Finance Ministry.
The government early in 2012 gave the go-ahead for state-run utility Israel Electric Corp (IEC) to seek investors to build the network using fiber optic cables.
These can provide Internet speeds of 1 gigabit per second - or as much as 100 times what is currently available.
The Communications Ministry believes the project will bring a range of advanced services and lower rates than currently exist.
Yet the process was delayed five times and by many months due to limited participation.
The government was forced to sweeten the terms, allowing the company selected to hold a 60% stake - up from 51% - in a new company that will build and operate a fiber-to-the-home (FTTH) network.
IEC will hold the other 40%.
Initially, four groups submitted bids but just one made it until the end, as two of the other companies joined up with Viaeuropa.
Project to cost billions of shekels
Viaeuropa holds half of the consortium, four other companies - including Israel's Rapac Communications and Infrastructure and BATM Advanced Communications - will hold 12.5% each.
The project is expected to cost billions of shekels to deploy some 25,000 km of fiber optics – 70% of which will be above ground to keep costs down. The government seeks to cover two-thirds of Israel by 2020. IEC already has close to 3,000 km of fiber across the country.
Using fiber to the curb and standard copper lines to the home, Bezeq - Israel's largest telecom group - offers Internet to 1.19 million customers for a 61% market share. Cable company HOT has 39%.
Both companies offer speeds up to 100 megabits per second but most Israelis surf at 10-15 megabits, which is deemed adequate for downloading and streaming video and music.
Upload speeds, though, are no more than 1-1.5 megabits. With fiber optics, 1 gigabit per second of upload and download can be reached.
The biggest winners of the fiber deployment are expected to be Israel's top mobile phone operators, Cellcom and Partner Communications, which bought companies that offer Internet services and seek to develop Internet TV.
But they now rely on the HOT and Bezeq infrastructures, limiting their own offerings, while Bezeq has started its own FTTH trials.