The alternative is to have FRIDAY as the second day off. This facilitates getting ready for Shabbos. As it is most frum Israelis take a half day off on Friday, or take the whole day off. Having Sunday has an official day off puts pressure on people to work on Friday.
There is also the issue of wanting to accomodate the Christians as opposed to the Muslims (remember that the largest religious minority in ISrael are Muslims and their day off is Friday,and also the adjacent countries are Islamic, so that closing on Sunday instead of Friday sends a message that Israel isn’t interested in peaceful coexistence with its neighbors).
Of course there is the option of a four day week.