Suggestion: next year start seeds in mid to late December and pit them into the ground in mid to late February. With plants held back in reserve, put them outside in the dirt as soon as you think they can survive the experience.

This is simplistic because I'm assuming you're in a similar growing situation as here (100/38 degrees and up now), assuming sweet peppers, and assuming that your plants are just plain stunted and are a loss. Are you on the sea like in Tel Aviv or Haifa? The drier interior like down in Eilat or Beer Sheva? Too many assumptions!

No need right now to rip them out, but you might plant some seeds right next to the stunted things and see what prevails. Can't hurt!

I live in the Galilee area. with 90 degrees outside right now and 51% humidity. I didn't plant the peppers outside this year earlier because every couple of years, we get a very light frost at night in the winter. It may not kill mature plants, but definately do some damage to tender seedlings.
I will take your advice and maybe put some seeds next to them and hope for them to sprout :)
So are you sure it's because of the heat?

I would say STRESSed.

I have similar issue with some of my peppers that got root bound in small pots/containers for too long. I was blaming mine partly on cool weather here but it seems that they have gotten serious set back due to root bounding.

Don't use those 6-pack trays for seedlings. The nurseries get away with it because they use abundant nutrients, light, and optimal temps. I had some tomatoes seeded in those a few years ago, and they didn't get past their first set of leaves until I repotted them in 4x4 cups. I'll never do that again.

Seriously, three months in a six-pack tray and anything is going to be horribly stressed and root bound. Peppers are not noted for their ability to come back after being root bound and stressed.

Have you fertilized them? They are probably set back, but thorough watering and regular fertilizing with a balanced fertilizer might help.

I understand my problem now. They're definitely stressed, I will start new peppers from seed right on the ground (hopefully my cat won't damage the seeds by waalking on them). And yes I have mulched quite a bit of organic compost as a fertilizer at the beginning of the season.

Try chicken poop. It works for me.