As an alternative (and ignoring the obviously substantial geopolitical concerns), is there a geographic reason not to dig a canal on the other side of the Sinai from, say, Aqaba to Rafah? If you had to dig that far, it would seem to be the next best option.
1. https://www.npr.org/2007/06/04/10619929/six-day-war-shaping-...
I can't see Egypt approving an alternate canal that Israel would have any control over, but I could absolutely see Israel going in on a chance to a) take business from Egypt and b) add a defensive feature along that border.
An underappreciated fact of Israeli and Palestinian geography is its mountains and hills; any major transportation project [1] requires extensive tunnel and bridge work.
[1] Examples: the TLV/Jerusalem high speed rail, the Haifa highway bypass, or a proposed transportation corridor connecting the main West Bank population centers along the ridge of the Judean and Samarian mountain ranges.