There's been confusion, different views and such. I'm making this post to clarify things. :)
Tldr; History: Timeline, Bible: Spice, Artistic: Gameplay.


Historical setting:
1. Ashkelon was destroyed pre-Peleset , probably by Seti II in the name of Pharaoh Merneptah. Sometime before Merneptah died, but while he was old and unlikely to campaign himself.
2. Peleset didn't originally want Ashkelon and lands of Canaan. Hence why they fought to settle in Egypt in 1170's bc. Check out the battle of the Delta on wikipedia.
3. By this time Ashkelon was still in ruins and it was granted to the Peleset by Ramesses III after the battles. Ramesses III claims total victory, but seems he rather signed peace terms favourable for the Peleset, consideringhe didn't enslave them etc but vassalized them instead. The Peleset at this time took over the Pentapolis, meaning after the battle of the Delta.
4. The in-game world starts at 1205 bc. Ashkelon, Israel are still un-destroyed and Peleset is north of Egypt. Merneptah Stele hasn't happened yet. The Peleset Pentapolis is still some 20-30 years in the future.
5. Conclusion: It is fully possible that still Canaanite Ashkelon at game start had a connection to "Israel" (or not, we don't know either way). At least Yurco thinks their connected.

Source(s): The Land of Canaan in the Late Bronze Ageedited by Lester L. Grabbe and supported by to an large extent, 1177 B.C. The year civilization collapsed by Eric Cline

Artistic License:
1. Assume above mentioned connection between Ashkelon and Israel meant they where one in the same.
2. Thus Israel wasn't nomadic (scholarship is all over the place on that)
3. Israel was a nacent power, that would eventually rise to pose a threat to Kemet (Egypt). Hence the civil war motif with Judea. Israel rolls over Judea, becoming powerful. But also to make the player weigh choices, like kill or peacefully integrate Dawid. Also why a certain Merneptah might want to eventually deal with Israel.
4. Units are made with a Canaanite look and feel, but also made with gameplay advantages & disadvantages in mind. Strong point: Spear, slings and religious fanatics
Ok points: Axes
Weak points: Chariots, Cavarly, Swords, Archers
5. Flexibility in the design of the mod, where player can roleplay different outcomes. For example, one could enable all legacies in the settings and go Egyptian Throne with Hammurabi's laws legacy, rp codifying the 10 commandments or go Aten and build monotheism.

Biblical myth:
1. Joshua
2. Goliath
3. Faction names
4. Unit names
5. Motifs