If I buy a japanese PS3 will I be able to connect to the PS3 online store in Europe?

May be...

I currently live in Japan and plan on buying a PS3 before returning to my country (Israel). The problem is - will I be able to connect to the European PS3 store when I come back to Israel? and will I be able to play online with my European friends?

Yes, PS3 is region free. You just need to register in your area.