Resilience in Innovation: Israel’s Tech Sector Rebuilds After Gaza War Impact

For nearly two years, Israel’s vital technology sector—a cornerstone of the national economy—operated under the shadow of war. Staffing shortages, investor hesitation, and disrupted air travel took their toll. But as a ceasefire largely holds in Gaza, early signs of recovery are emerging, driven by a surge in defense innovation and renewed investment momentum.

The stakes are high. Cutting-edge technologies represent 17 percent of Israel’s GDP, 11.5 percent of jobs, and 57 percent of exports, according to the Israel Innovation Authority’s latest data from September 2025. When the war began in October 2023, the sector’s vulnerabilities became starkly apparent.

The War’s Toll

“High-tech companies had to overcome massive staffing cuts, because 15 to 20 percent of employees, and sometimes more, were called up” to the front as reservists, IIA director Dror Bin told AFP. The loss of skilled workers, even temporarily, disrupted projects and delayed timelines.

Air traffic, essential for a globalized industry, was suspended. Foreign investors froze commitments, waiting to see how the conflict would unfold. Between October 2023 and July 2024, approximately 8,300 advanced technology employees left Israel for a year or more—about 2.1 percent of the sector’s workforce.

The sector’s output, which had grown 13.7 percent in 2023 compared to 1.8 percent for overall GDP, stagnated in 2024 and 2025.

Signs of Turning

Now, industry professionals believe a corner has been turned. Israeli high-tech companies raised $15.6 billion in private funding in 2025, up from $12.2 billion the previous year, according to preliminary figures from Startup Nation Central.

Deep tech—innovation based on major scientific and engineering advances in areas like artificial intelligence, biotechnology, and quantum computing—returned to pre-2021 levels, a significant rebound from the war’s disruption.

In mid-December, US chip giant Nvidia announced it would create a massive research and development center in northern Israel, potentially hosting up to 10,000 employees. “Investors are coming to Israel nonstop,” Prime Minister Benjamin Netanyahu said at the time.

Defense Tech Surge

The most dramatic shift has been in defense technologies. Between July 2024 and April 2025, the number of defense sector startups nearly doubled, from 160 to 312, according to Startup Nation Central.

The war pushed Israel’s defense ministry to adapt. Until recently, the ministry primarily sourced from large, established defense firms. But with urgent operational needs, it began accepting products from startups—technologies “not necessarily fully finished and tested,” as Menahem Landau, head of defense tech investment company Caveret Ventures, explained.

Of more than 300 emerging companies collaborating with the defense ministry’s research and development department, “over 130 joined our operations during the war,” Director General Amir Baram said in December.

“Defense-related technologies have replaced cybersecurity as the most in-demand high-tech sector,” said Landau, a reserve lieutenant colonel. “Not only in Israel but worldwide, due to the war between Russia and Ukraine and tensions with China.”

Looking Forward

The recovery is partial and still fragile. The brain drain may not be fully reversed. Global competition for tech talent remains intense. But the direction is positive.

For Israel’s economy, the tech sector’s rebound matters beyond the industry itself. The 57 percent of exports that flow from advanced technologies support employment, investment, and growth across the country. When tech recovers, the broader economy follows.

For the startups that emerged during the war, developing defense technologies under pressure, the experience forged resilience that may serve them well in peacetime markets. And for the investors now returning, Israel’s appeal—talent, innovation, determination—remains intact.

The war’s scars are not erased. But the sector that drives Israel’s economy is rebuilding. And in the world of technology, rebuilding is what innovators do.

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