Guttman, 53, has a reputation for being a methodical and meticulous tactician and was the only candidate considered for the position. He received unanimous backing from the 11-member IFA board, initially on a two-year deal.
Fernandez's contract officially ends at the end of the year.
"I don't believe there has ever been such concensus over the choice of a coach as there is with Eli, everybody in the country, administrators, coaches, players and fans think he is the right man for the job," said Israeli FA chairman Avi Luzon.
Guttman's first task will be to prepare for a home international friendly against Euro 2012 co-hosts Ukraine on February 29, and to formulate a squad for the Brazil 2014 World Cup qualifying campaign that begins in September.
"This team's main code will be honour and respect, there will be no egos in the dressing room. It will always adhere to a playing system that I will determine because only through a disciplined system of play will it be possible to narrow the gaps against opposition such as Russia and Portugal," Guttman said.
The Israeli has coached many clubs in a 33-year career and began as an understudy to Shlomo Scharf, Israel's longest-serving coach between 1992-99 during their initial period in the European fray.
