The whole installation should be UTF-8. See this wiki page for more detailled info. It was made to repair messed installations but is worth reading to get the picture on charset.
Hebrew translation still not working. I switched to UTF-8 at settings.php but all the text in Hebrew turns to question marks. Do I need to save all the Vanilla files as UTF-8?
This is typical of a messed charset installation. Everything you need to know is on the wiki page. Starting on a fresh test installation on a MySQL > 4.1 should allow hebrew characters to display if your file is in utf-8.