I'm an Israeli in this field that is currently living abroad. The quality of Israelis in this field is very high.
I can think of some possible reasons (I'll try to see below), but the question sounds really strange to me.

If a scientific field is doing well, the question should be how do we copy this to other fields, and not how do we make it do less well...

Generally, I think that the reasons that Israelis do relatively well in theoretical computer science are some mixture of:

1. As people said, many smart Israelis do their first degree in computer science and not say mathematics or physics. The reason is the job prospects. This is not unique to Israel - in the U.S. many smart people study law or business because it pays more than being a programmer or engineer.

2. When a good student then continues to do a Ph.D, they are naturally attracted to good professors. Therefore, if there are good Israeli professors in theory of CS then the good students will tend to study this as well.

I think generally a small country can't be strong everywhere, so it's better to be strong in some areas, rather than being average everywhere. But in any case probably any attempt to "fix" this "problem"" will result in good people not going to Ph.D or quitting it or taking jobs abroad, rather than other areas becoming better.

That's not to say that with some effort it's not possible to make Israel stronger in some other areas. But the way to do it is not to make us worse in theoretical computer science. In fact it's the opposite - excellence attracts excellence.