Strange tale about island resort (5)
I believe the answer is:
eilat
'resort' is the definition.
(Israeli resort)
'strange tale about island' is the wordplay.
'strange' is an anagram indicator.
'about' means one lot of letters goes inside another.
'island' becomes 'i' (geographical abbreviation).
'tale' with letters rearranged gives 'elat'.
'elat' going around 'i' is 'EILAT'.
(Other definitions for eilat that I've seen before include "Israel's Red Sea port" , "Israeli Red Sea port" , "Middle Eastern port" , "Red Sea resort" , "city" .)