Israel’s economy is making a comeback.
Our battlefield execution restored global confidence, revived capital flows, and reaffirmed Israel’s reputation as the world’s most resilient innovation economy.
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This is a guest essay by General Yoav Gallant, former Israeli Minister of Defense.
You can also listen to the podcast version of this essay on Apple Podcasts, YouTube Music, YouTube, and Spotify.
For most of modern history, the relationship between security and economic growth has been understood in two seemingly opposing ways.
Wars disrupt trade, divert national resources, increase sovereign risk, and constrain growth. Yet some of the most transformative civilian technologies originated in government-funded defense projects. The internet emerged from the Defense Advanced Research Projects Agency (DARPA), a U.S. Department of Defense agency responsible for creating breakthrough, high-risk, high-return technologies to ensure national security. GPS began as a military navigation system. Jet propulsion and satellite communications both developed from security‑driven investment before reshaping the global economy.
Security has therefore never been purely a cost. At its best, it has served as a catalyst for innovation. What is changing today is the speed and visibility with which security performance influences economic confidence.
In an era defined by cyber warfare, precision strike capabilities, intelligence dominance, and sustained strategic competition, security performance is increasingly understood as a measure of state durability. Investors and governments are asking not only whether an economy can grow, but whether it can withstand shock, defend critical systems, and preserve continuity under pressure. Durability has become a component of economic credibility.
Strong economies are themselves a prerequisite for effective defense. Modern militaries require sustained investment, advanced industry, technological depth, and an educated workforce. Security stabilizes the national platform on which economic life depends, while economic strength finances the capabilities that make security possible. The true indicator of national resilience is the ability to sustain both simultaneously, particularly during crisis.
Countries that demonstrate operational competence attract capital because they appear reliable in moments of instability. Countries that fail to defend themselves are priced differently by markets, lenders and strategic partners. Security is no longer interpreted solely as a cost. It increasingly functions as economic insurance.
Military strength generates deterrence. Deterrence reduces the likelihood of prolonged conflict. The absence of war strengthens economic stability long before force is ever used.
When defense credibility weakens, economic strength begins to erode internally. When it is restored, confidence follows. Investors favor ecosystems that function under pressure. Economic power increasingly follows security credibility.
This dynamic has been visible globally in recent years, yet few countries illustrate it as clearly as Israel.
By nearly every conventional indicator, 2025 ranked among the strongest years in the history of Israel’s economy and technology sector. The record cybersecurity exit of Wiz, acquired by Google for $32 billion, set a new benchmark for Israeli innovation. Capital continued flowing into advanced technology companies. The shekel appreciated, strengthening by more than 13 percent against the U.S. dollar over the course of the year. Israeli equity markets rose despite sustained conflict.
Global defense demand expanded sharply as well. Order books among major defense contractors approached historic levels even as political leaders publicly criticized Israeli military operations. Markets distinguished between rhetoric and strategic reality. All of this unfolded while Israel was still fighting a multifront war, mobilizing hundreds of thousands of reservists, and sustaining extended military operations.
At first glance, this appears counterintuitive. Many assume that Israeli technology is thriving despite war. The relationship is more direct: Economic confidence strengthened as Israel demonstrated operational effectiveness and strategic control. Capability restored credibility.
Israel’s security performance is inseparable from the structure of its society. Military service is mandatory. Nearly every entrepreneur has served, many in elite intelligence, cyber, air, and special operations units. During the current war, thousands of founders and executives returned to reserve duty while continuing to lead companies, manage employees, and communicate with global partners. Board meetings took place between deployments. Investment calls were conducted from bases in the south and command centers in the north.
For decades, international investors have understood what this background produces. Israeli founders tend to be decisive, resilient, and accustomed to operating amid uncertainty. They are comfortable making high-stakes decisions with incomplete information and adapting rapidly when conditions change.
These characteristics are forged through experience rather than theory. The technology itself reflects that experience. Israel’s strengths in cybersecurity, intelligence systems, data analytics, and mission-critical infrastructure grew from operational necessity. Investors backing Israeli cyber companies know they are partnering with individuals who helped build real defensive systems against sophisticated adversaries. Israel’s economic reputation has long been intertwined with the reputation of the Israel Defense Forces.
The Hamas-led attack on October 7th produced a profound strategic shock. Beyond the human tragedy, it challenged a foundational assumption behind Israel’s innovation ecosystem: the belief that Israel maintained intelligence superiority and defensive precision. If a country known for anticipating threats could be caught unprepared, investors were bound to reassess risk.
Support from international partners remained strong, yet engagement slowed. Deals paused. Committees revisited exposure. This reaction was practical rather than political. Confidence had been shaken.
In the early hours of the war, following the first situational assessment, I appeared before the Israeli public and stated clearly: We are at war, and we will win. I believed this from the first moment because I knew the capability and determination of our soldiers — both on the battlefield and across the supporting systems. My confidence extended beyond the front lines. I have deep trust in Israel’s scientists and technologists. They are fighters at heart and refuse to give up, just as their comrades do on the battlefield. The same spirit that drives our military innovation drives our civilian technology sector.
A few weeks later, I had a conversation with the Governor of the Bank of Israel, and he reinforced the strategic logic behind that declaration. “The most important component for Israel’s economy in the near future is victory in the war,” he told me. Subsequent developments validated that assessment.
As Israel adapted and reasserted operational control, perceptions began to shift. The campaign against Hezbollah in 2023 and 2024 became a defining moment. Precision intelligence, operational creativity, and coordinated execution were visible to allies and competitors alike. Complex operations disrupted command structures, degraded rocket capabilities, and eliminated senior leadership, including longtime Hezbollah chief Hassan Nasrallah and his successors.
These were military achievements, and they carried immediate economic meaning. Investors observed execution under pressure. Strategic partners saw a state capable of learning, adapting, and acting decisively. Transactions resumed. Capital returned. Israel’s reputation for technological sophistication and operational excellence was reinforced.
Behind political criticism, a quieter message often travels through professional military channels. Senior officers study Israeli operations, request briefings, and pursue technological cooperation. Their conclusion is rarely stated publicly but widely understood: many seek capabilities similar to Israel’s. This professional recognition is absorbed by defense establishments and, over time, by markets as well.
Actions beyond Lebanon strengthened this perception. Carefully calibrated operations targeting Iranian capabilities conveyed a broader message: Israel remained capable of defending itself while managing escalation responsibly. The Israeli brand recovered because performance was visible.
Nations located in relatively benign environments enjoy an inherent advantage. They can allocate resources differently and pursue growth without constant disruption. Yet the character of modern danger has changed. Ballistic and cruise missiles, offensive cyber operations, and advanced UAVs compress geography. No country is truly distant from risk.
In this environment, resilience becomes a strategic asset. Nations that confront threats regularly develop the institutional strength required to absorb shocks, adapt quickly, and continue functioning under pressure. Those encountering major threats for the first time often pay a heavier price, not because they lack resources, but because preparedness cannot be improvised. States that have fought, absorbed blows and ultimately prevailed arrive far better prepared than those that reach the battlefield fresh but without any national experience of war.
Strength is rarely built in comfort. Nations that absorb shocks and continue functioning develop a strategic maturity that cannot be simulated in periods of prolonged calm.
This principle is military in origin, yet its economic implications are profound. Economies built alongside security discipline tend to be more flexible, more innovative, and better equipped to recover from disruption. Over time, repeated tests produce durability. Durability attracts confidence, and confidence attracts capital.
A nation of fewer than 10 million people absorbed attacks on seven operational fronts and in additional soft arenas, operated under intense diplomatic pressure, mobilized a significant portion of its workforce and continued generating growth.
Equally important is the human capital forged during conflict. Hundreds of thousands of soldiers, both regular and reserve, are emerging from this war with operational experience across air, land, sea, intelligence, cyber, logistics, and communications domains. Many encountered complex problems for which no adequate technological solution yet existed. They are returning to civilian life determined to solve those challenges. Many already operate within Israel’s technology sector. Others are entering it now with the ambition to transform battlefield lessons into civilian innovation while building successful companies.
This dynamic has shaped Israel’s economy for decades. It is accelerating again.
In a volatile world, capital gravitates toward reliability. Investors seek partners who can function when conditions deteriorate. Israel demonstrated precisely that capacity. I often compare Israel to the honey badger. It is not the largest animal in the wild, but it is exceptionally tough and resilient, and it does not hesitate to confront lions or snakes that would rather avoid it. Our size is limited; our determination is not.
The emerging global order will reward countries that prove they can defend themselves, adapt rapidly, and maintain national coherence during crises. Security credibility will increasingly influence how capital is allocated, where partnerships form, and which innovation ecosystems earn long-term trust.
Prosperity will depend, in part, on the ability to withstand shock and recover quickly. For Israel, the strategic implication is clear. Security is not separate from economic success. It is one of its foundations. Military strength creates deterrence, deterrence stabilizes the national environment, and stability enables economic growth.
In the Middle East, words and declarations carry limited weight; performance is what shapes reality. Success on the battlefield does more than protect borders. It helps secure the economic future.
Totally agree with General Gallant. In the world today a country either has the military strength to prevail or enemies will take advantage of weakness. Wish the need for a strong military posture wasn't necessary but that is not reality especially for Israel. The General is correct that an effective military goes hand in hand with economic strength. Investors look for stability and not constant unrestrained chaos.
Israel suffers from the fact that 12% of the population who is Jewish does not engage in productive work of any kind. I am referring to the Ultra Orthodox. They get by for the most part on government handouts and other forms of charity. Israel which has a population of about seven million Jews cannot afford the luxury of allowing these Jews to use their religiosity to avoid serving in the IDF along with staying on the dole to be a "learner". The excuse that they use prayer as a weapon against Israeli destruction will not fly anymore. Its causing way too much social strain and disruption. Israel needs that extra brain power and hands to continue to be the export nation of various tech systems because of a absence of natural recourses.
Nobody is telling the ultra Orthodox to give up their way of life, but they have to make a accommodation with a secular Israeli government that not only helps support them but also protects them from people who wish them dead. Yes the Orthodox Rabbi's are loath to give up any power they hold over their followers. But with their high birthrate at some future date they will be 20% of the Israeli Jewish population shortly after 2050. A country the size of Israel cannot support it and it will retard the financial viability of their international and domestic markets.
In my own families case I have a distant relative that lost a son to the various recent wars Israel had to fight. He is modern Orthodox but over the last few years has grown very bitter against the ultra Orthodox. What Israel cannot do is manage dissention within large segments of the population against the conduct of the super Orthodox and its external enemies at the same time. They do not have that luxury with such a small population.