Where did the story of Hanukkah take place?

In Israel.

After several victories over the Greeks, the Hasmoneans (also called Maccabees) entered the Holy Temple which the Greeks had defiled, reconsecrated it to God, and began the Temple service once more.
Among other things, they wanted to relight the olive oil candelabrum (Exodus ch.25), but could only find one day's supply of undefiled oil - and it would take eight days to make and bring some more. Miraculously, the menorah stayed lit for eight days (Talmud, Shabbat 21b), allowing enough time for new oil to be prepared and brought. Hanukkah was founded in commemoration of this.