The creation of Israel in 1948 in what was then the British-administered territory of Palestine under a UN mandate fulfilled the Zionist ambition for a Jewish state. Subsequent military victories over its Arab neighbors enabled Israel to annex or occupy additional territory, some of which it returned to Egypt under the 1978 Camp David agreement. Hopes raised in the 1990s, for a "land for peace" deal to end the Israeli–Palestinian conflict, were mired in a cycle of violence by 2002.

Large numbers of Jewish immigrants settled in Palestine before Israel was founded. After World War II, immigration increased massively. Sephardi Jews from the Middle East and Mediterranean are now probably in the majority, but Ashkenazi Jews, most of central European origin, still dominate society. Hundreds of thousands of Russian Jews have arrived since 1989. Israel's non-Jewish population totals more than one million – mostly Arab and predominantly Muslim (with Christian and Druze minorities). Many take part in the democratic process, but remain sidelined in Israeli life. There are tensions between secular and Orthodox Jews and between left and right over the pursuit of peace with the Palestinians.

Strengths

Modern infrastructure; educated population. Huge potential of agriculture, manufacturing, and high-tech industry. Important banking sector.

Weaknesses

Ongoing violence and regional instability. Large defense budget. Financial burdens of absorbing immigrants and subsidizing settlement. Little trade with Arab neighbors. Rising unemployment. Corruption.

Profile

The government is seeking ways to reduce massive state spending. The state owns most of the land and controls over 20% of all industries and services. Public companies are being privatized and there are plans to end restrictive labor practices. Agriculture is highly specialized and profitable, but has been eclipsed by high-tech industries. The state is now aiming to boost the service sector.

Israel's economy expanded through the 1990s, benefiting from mass immigration of Jews, many highly educated, from the former Soviet Union. Although unemployment levels rose as a result of immigration, new skills and contacts also helped the Israeli economy toward sustained export-led growth. Pockets of poverty remained in "development towns."

The Palestinian uprising from 2000 seriously injured the economy, hitting trade, tourism, and investment. The Israeli military response has inflicted $300 million of damage to Palestinian infrastructure.

Israel is a multiparty democracy.

Profile

Conflict with the Palestinians dominates the agenda. Peace initiatives of the 1990s have foundered. Labor prime minister Ehud Barak was replaced by hard-liner Ariel Sharon, elected in 2001. Fractious coalitions are endemic and Sharon's broad "government of national unity" is plagued by interparty disputes.

Main Political Issues

Peace with the Palestinians

Whether Israel's security should be based on armed strength, or on agreements with Palestinians and neighboring countries, is a central issue. Small but influential religious parties support Jewish settlement of the occupied territories, the main obstacle to any "land for peace" deal. The Oslo Peace Process, begun in 1993, seemingly heralded the gradual end of occupation, but Palestinian terror attacks and, latterly, suicide bombings of civilian targets, reinforced Israeli skepticism about prospects for peace.

Political unity

The national unity government does no more than paper over differences between major parties. Sharon's Likud vehemently backs a hard-line, agressive stance against the Palestinians and their Arab supporters. The centrist Labor party favors negotiation, which most religious groups reject.

Israel is technically at war with all Arab states except Egypt and Jordan; it withdrew from southern Lebanon in 2000. Israel maintains close ties with the USA, but is increasingly isolated due to its harsh response to Palestinian militancy.

Israel, the only known nuclear-armed power in the Middle East, has a small regular defense force, which can be boosted by nearly 600,000 reservists. Equipped with some of the latest US technology, it is vastly superior in firepower (and training) to the armies of its Arab neighbors. To counter the Palestinian intifada (uprising) it uses punitive strikes and counterinsurgency methods rather than conventional tactics.

The country's most valuable deposits of minerals are potash, bromine (of which Israel is the world's largest exporter), and other salts mined near the Dead Sea. Reserves of copper ore and gold were discovered in 1988. In the coastal plain, mixed farming, vineyards, and citrus groves are plentiful. Former desert areas now have extensive irrigation systems supporting specialized agriculture.

Israel's most critical resource is water. The 1994 treaty with Jordan provided for sharing the water of the River Jordan.

Since 1993–1994, designated Environment Year, the government has aimed to promote recycling schemes, the cleanup of rivers, and a healthier urban environment.

Railroads are being extended. There are three commercial ports. Ben Gurion airport outside Tel Aviv is being expanded.

The ratio of doctors to the total population in Israel is one of the highest in the world. Primary health care reaches all communities. Israel's hospitals have pioneered many innovative treatments.

A highly educated population has been the engine of Israel's economic growth. State schools have religious (Jewish), secular, and Arab streams. Ultra-orthodox and Sephardi Jews increasingly run their own private ventures.

Car theft is a rising concern. The vast majority of violent attacks are due to the Israeli–Palestinian conflict.

Income per head is high, but taxation is heavy. In theory, those living in communes (kibbutzim) eschew personal material wealth.

Tourism has been damaged by the sustained violence of the Israeli–Palestinian conflict.

War with the neighboring Arab states followed immediately upon the creation of the state of Israel in 1948.

• 1967 Six-Day War; Israel takes West Bank, Gaza, Sinai, Golan Heights.
• 1973 Egypt and Syria attack Israel.
• 1978 Camp David accords with Egypt.
• 1979 Formal peace treaty, Sinai returned to Egypt.
• 1982 Israel invades Lebanon.
• 1987 Palestinians launch intifada.
• 1993 Oslo Accords.
• 1994 Palestinian autonomy begins in Gaza and Jericho.
• 1995 Prime minister Yitzhak Rabin assassinated.
• 1996 Palestinian elections.
• 1998 Israeli government under Benjamin Netanyahu (Likud) stalls on US-backed plan to revive peace process.
• 1999 Ehud Barak (Labor) elected prime minister. Renewed peace process with Palestinians and Syria.
• 2000 Israeli forces withdraw from southern Lebanon. Large-scale Israeli–Palestinian clashes.
• 2001 Ariel Sharon (Likud) elected prime minister; forms unity government. Conflict worsens..
• 2002 Israel besieges Arafat in Ramallah, then lifts siege. Suicide attacks and Israeli reprisals intensify. International condemnation grows.