For Jews travelling to Jerusalem, the best value in lodgings is Heritage House, with its unbeatable price of $0.00 per night. This is an undeniably Jewish operation. Men and Women are seperated into two buildings and everyone observes Shabbat, and the kitchen is kept kosher. Wearing a yarmulke is not required, but I would recommend it as a social matter, if nothing else. There are about 25 beds, 5 or 10 beds to a room, communal bathrooms, a kosher kitchen that is kept dairy (meaning that meat products can't be kept in the fridge), a judiaca library, a computer, a payphone, and a TV with a DVD collection (frequent movie nites). The staff are friendly and caring, and adopt a live-and-let-live policy towards non-observant Jews. On Shabbat, most guests either have a meal with friends and relatives, or are sent to a family living in the old city for a homecooked Shabbat meal.
Unique Qualities: Judaism. For religious Jews, this hostel has everything: proximity to the Western Wall, free classes at a nearby Aish Torah Yeshiva, and family homestays for Shabbat meals. For non-religious Jews like myself, it was a cultural education to be a practicing Jew for a few days. If you are interested in spirtuality, religion or Jewish culture, I recommend you try it too.
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Theme: Hostel
Comparison: least expensive
Phone: (02) 627-1916
Address: 2 Ohr Hachaim Street, Jewish Quarter, Old City
Directions: Walk in near the Western Wall or Zion Gate and ask anyone who is not a tourist. If they don't know, ask where Chabad Square is, then ask there.
Website: http://www.heritage.org.il/