Since the Hamas-led attacks of October 7, 2023, Israel’s economy has demonstrated unexpected resilience, with the Tel Aviv Stock Exchange’s key indexes more than doubling from their pre-attack levels. Initially, both Israeli and international analysts anticipated a severe economic downturn resulting from the conflict, which many expected to be protracted. Concerns centered on disruptions to tourism, investor flight, relocation of high-tech firms, and closures of small businesses due to the extended deployment of reservists.

In the immediate aftermath, Israel’s economy contracted sharply across most indicators. However, consumer spending rebounded quickly, buoyed in part by canceled international flights that limited outbound travel and redirected spending domestically. While economic growth slowed to near zero in 2024, it has since picked up. A recent Bank of Israel report projects gross domestic product growth of 4.0 percent in 2026 and 5.5 percent in 2027, considerably higher than the average forecast for OECD countries.

This economic trajectory highlights a complex tension within Israel’s secular, highly educated, and liberal elite. This demographic views itself as a protector of the country’s procedural democracy, yet many of its members benefit financially as employees, investors, and entrepreneurs in sectors boosted by ongoing conflict. Defense and cyber-technology firms, in particular, have thrived amid heightened security demands, contributing to stock market gains and export surges.

The paradox deepens as these economic conditions coincide with a right-wing political movement seeking to formalize control over the West Bank and diminish Palestinian national aspirations. Advocates of judicial overhaul under Prime Minister Benjamin Netanyahu’s government maintain that changes to the judiciary are instrumental to advancing the goal of annexing the West Bank and consolidating Israeli sovereignty over these territories.

Some in Israel’s pro-democracy camp have reported that wealthy technology entrepreneurs hesitate to openly oppose the government’s policies on the West Bank, fearing detrimental impacts on business profitability. This reluctance reflects the interconnectedness of Israel’s tech sector with defense industries, illuminating why international criticism over Israel’s conduct in Gaza and the West Bank—including concerns about settler violence reportedly supported by the army—has not translated into substantial economic pressure from the country’s elite.

Contrary to earlier assumptions that economic consequences would compel political change, Israeli capital has been largely insulated from repercussions linked to human rights concerns. Rather than deterring investment, the geopolitical landscape, including Europe’s heightened security concerns related to Russia, has increased demand for Israeli military technologies. For example, Elbit Systems, a key Israeli defense contractor specializing in drones and weapons systems, has seen its market valuation triple since October 2023. Israel’s defense industry, encompassing firms such as Israel Aerospace Industries and Rafael Advanced Defense Systems, recorded record exports of $19.2 billion in 2025, marking a 30 percent increase from the prior year, with over one-third sold to European customers.

Despite persistent challenges—including rising government debt and a construction sector yet to recover—Israel’s economy exhibits a resilience tied closely to the defense and high-tech sectors. Ongoing conflicts in Gaza, Lebanon, Syria, and Iran serve as real-world testing grounds for emerging military technologies, reinforcing Israel’s role as a global supplier of defense innovations.

For international actors seeking to influence Israel’s policy, this economic dynamic presents a significant obstacle. While Western governments have voiced criticism, their strategic priorities—particularly concerns about Russian aggression—have led to deepened military and technological cooperation with Israel. In the United States, debates over $3.8 billion in annual military aid overlook that Israel’s defense exports in 2025 were quintuple that figure.

Within Israel, advocates of liberal democracy whose professional and financial interests are tied to technology sectors face a critical challenge. They must broaden their understanding of self-interest to encompass the political and social costs of the occupation. The persistence of undemocratic practices in the West Bank and the sustained suppression of Palestinian self-determination continue to pose long-term risks to Israel’s democratic institutions inside its internationally recognized borders.