The MKI is the top-end of the IAF's fleet, it is just not feasible to have an additional 200 (how many Rafales will be ordered) of them in lieu of the Rafale. Many don't seem to understand that the MKI is probably second only to the F-22 to maintain and fly- the cost per flight hour is ENORMOUS (in excess of $25,000 IIRC) whilst the Rafale is cheaper to both fly and maintain as a result of the French/Western design ethos.
The MKI is a great plane but it needs an able sidekick and the Rafale fits the bill and much more.
Not to mention the need to get away from as much Russian kit as possible, their after sales performance has been abysmal across the board.