Smack in the center of 'new' Jerusalem, the Blue Hole has long been a staple of expats, young Israelis, and anyone in need of a cheap drink. The ambiance is great. It's actually located in a cellar. The room itself is small and dark and lit primarily by candles and a fish tank. Service is usually good and you can get 2 for 1 during their generous happy hour. There are a number of bars on Yael Solomon competing for your money, but the Blue Hole is by far the best!
One word of caution: the ceilings are low and you have to be extra careful with your head when you go to the restroom!