1. The sherut is a 10-seat minibus that takes you to your destination and the cost is 62 NIS/pp. Everyone uses this service because it is very efficient. The only viable alternative is a regular taxi.

2. The "light rail is a tram/streetcar service that operates in Jerusalem. It works the same as the buses (you can transfer from one to the other). Here is information and a map of the line: http://www.citypass.co.il/english/

3. You can tour most of Israel by yourself. Most sites have signs, audioguides, brochures, etc, so you don't need a private guide. The only place where one is very beneficial is in the Old City in Jerusalem. There are also the group day-tours run by Egged Tours, United Tours and Ben Harim. You should also check out the tours organized by the Abraham Hostel in Jerusalem:
http://www.abraham-hostel-jerusalem.com/en-us/activities/tours.aspx
The city of Tel-Aviv also sponsors five free tours every week:
http://visit-tlv.com/?CategoryID=191&ArticleID=480&Page=1

HI!
1. The sherut was explained above. Nesher has been running the service for more years than I can remember. They are efficient and reliable. Unless you want to spend the cost of a private taxi they are the only viable alternative for getting to Jerusalem from TLV.

2.The light rail is a trolly like public transportation system that runs in part of Jerusalem. It runs via overhead electric wires. You buy your ticket PRIOR to getting on the light rail. If you have a ticket from the bus there is a free 90 minute transfer window. Make sure you validate your ticket ( newly bought or transfer) upon entering the tram. Inspectors DO check!

3. The $650 or more a day is the cost of a licensed private guide who is using a vehicle to transport you. Yes, a group tour is less expensive BUT it is , a group. The private tour goes where you want and a speed you want. The group tour can be 40+ people moving in a herd. AND yes, it is less money. The various companies you mentioned all offer the same tours. (Ben Harim, Egged, United etc. ) They are not "alternative" companies but very mainstream. How good they are depends upon the guide they are using that day. You, of course, have no say. The free tour at Jaffa Gate is an overview of the Old City of Jerusalem. The number of participants varies. Since the guide does NOT get paid, you should tip a minimum of 50NIS PER PERSON! Abraham Hostels mentioned above uses Sandeman agency for their tours.