In my search for a good glossary plugin for WordPress, I came across Natan Olsen's WP-SNAP. Which is brilliant. Only I need it to work with Hebrew.
I know this is asking a lot, but if you could take a look at the source code (PHP) and tell me where to start altering this plugin to work with Hebrew letters, I will be forever thankful.
In wp-snap.php, there's a huge function called navigation which seems to be doing the work.
There's a data structure there called $tempstr, defined begining at line 250, which is initialized with localizable text. There's a language subdirectory which you can use to create a Hebrew localization - see this howto on localizing a plugin (it also covers writing the plugin, so you can skip most of it) So I'm guessing that if you create a Hebrew localization file for this plugin, you'll see it behave in interesting, hopefully useful ways.
That is, assuming the php functions he uses to sort alphabetically (natsort and natcasesort) work on Hebrew. Otherwise, you'll need to dig into the navigation method, which is rather hairy...