Amichai, who died last Friday, was known for blending modern ideas with ancient Jewish traditions, as well as his innovative use of Hebrew.
"He was very Israeli, and at the same time very Jewish in his writing," said his close friend, writer Aharon Appelfeld.
Thousands paid tribute to the beloved poet as the casket was placed in downtown Jerusalem's Safra Square on Sunday before his funeral.
Israeli President Moshe Katsav and Prime Minister Ehud Barak were also present.
"One of the greatest artists of Israel and the Jewish world has gone from among us," Barak said in a statement.
Amichai was born in Germany to a religious family that immigrated to Palestine in 1936. He served with the Jewish Brigade of the British Army in World War II.
He was a member of the Palmach, the strike force of the Haganah, the fighting force of Jewish settlements in pre-state Palestine. Amichai also fought in several of Israel's other wars.
He wrote 25 books of poetry, some of which have been translated into English, two novels, two short-story books and three children's books.
Amichai's poems have been translated into 37 languages, and he was perennially mentioned as a potential candidate for the Nobel Prize in Literature.
Regarded as Israel's national poet, Amichai lived in Jerusalem for his entire adult life, and his work often revolved around seeing the possibility of coexistence in opposites - in the mixture of tradition and modernity, beauty and bloodshed, that mark Israel's capital and Israeli life.
"In the United States, you have to travel miles to see battlefields, but this is a small country, and everything is adjacent and jumbled together," he told The Associated Press in 1994.
"I can stand on my balcony and tell my children, 'Over there, I was shelled for the first time. And over there, just to the right, just beneath those trees, I was kissed for the first time.'"
Amichai repeatedly urged peace with Israel's Arab neighbors and supported former Prime Minister Yitzhak Rabin's initiative to make peace with the Palestinians.
From the publication of his first volume, "Now and in Other Days" (1955), Amichai was known for modernizing Hebrew poetry - for fusing modern, technological slang with biblical and medieval imagery.
He also fused personal and political themes such as love and war.
But he is perhaps best known for writing verse accessible to - and relevant for - the average reader.His poem "From Man You Are, To Man You Shall Return," written during the 1973 Yom Kippur War, discussed a parent listening to the noise made by a soldier son going off to war as the parent accepts the prospects of the young soldier's premature death.
The poem became a consolation for Israeli parents who had lost their children in war.
As Doron Rosenblum, who called Amichai Israel's "Citizen No. 1," put it the Israeli daily newspaper Ha'aretz: Amichai's lines "pop up every time someone wants to soften our harsh reality or make it palpably ordinary, when one wants to describe a slice of life richly, to speak about real Israelis: Those who ride on the bus, those whose voice gets swallowed in the 'rising rumble' of engines, who carry packs on their back, and have had their hair shorn by the military, or return home on Friday evening, when 'the laundry is already dry in the yard.'"