The ad drew fire from the left-wing coalition opposing Likud, the Zionist Union, which accused Netanyahu of "colossal" security failures.
The ad features actors portraying jihadists driving in a white pick-up truck with two standing in the rear carrying the black flag of IS, the extremist Sunni Muslim group that has seized control of large parts of Syria and Iraq.
The truck pulls up next to a car driven by an Israeli and one of the "jihadists" asks: "Which way to Jerusalem brother?"
Two slogans appear on the screen: "The left will give in to terrorism" and "It's us or them, there is only Likud, only Netanyahu."
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The Zionist Union, formed in December as an electoral alliance of Israel's Labour Party and the centre-left Hatnuah, denounced the ad and "the colossal failure of Benjamin Netanyahu in the field of security".
"He freed terrorists with blood on their hands and strengthened Hamas, and during his tenure Iran became a state that has reached the nuclear threshold," it said in a statement.
Recent polls have shown a tight race between Likud and the Zionist Union but many voters remain undecided.