Two years of war – where is Israel headed?

Israel's many fronts

The war against the terrorist organization Hamas in the Gaza Strip began with the attack on October 7, 2023, and continues to this day. In the second year of the war, there was initially hope for a détente: on January 19, 2025, Israel and Hamas agreed to a ceasefire. By March 19, the terrorist organization had released 33 hostages – staged as humiliating, media-effective events in which hostages and even the bodies of hostages were presented on stage and dragged through hostile crowds.[1] In return, Israel released nearly 2,000 imprisoned terrorists. After further negotiations failed, Israel resumed direct combat operations. According to the UN, a blockade of aid deliveries had already begun. Israel's aim was to weaken Hamas, which was seizing food supplies and distributing them to secure its power. To prevent the terrorist organization from looting the aid organization's convoys, Israel, together with the US, commissioned the Gaza Humanitarian Foundation (GHF) to distribute aid supplies in Gaza. Shortly thereafter, Prime Minister Netanyahu announced that he would occupy the entire Gaza Strip to ensure that Hamas could not survive politically or militarily in the long term. On August 8, 2025, despite resistance from the army leadership, the cabinet decided to conquer Gaza City – a move that escalated the fighting once again and could tie up Israel's army for the long term. At the same time, Israel is also waging war against Hamas beyond Gaza. On several occasions, high-ranking Hamas representatives abroad have been the target of targeted operations, most recently on September 9 in Doha.

Israel is also active on other fronts: after Iran had already attacked Israel twice with missiles and drones in 2024, the 12-day war between Israel and Iran broke out on June 13. The Israeli Air Force attacked Iranian nuclear facilities and eliminated large parts of the Iranian military leadership. After twelve days of intense fighting with missiles, drones, and airstrikes, Israel's air force was able to significantly impair Iran's ballistic missile capabilities and, with the support of the US Army, its nuclear ambitions.

Another ongoing threat is posed by attacks by the Houthis from Yemen; in September, they damaged the airport near Eilat in a drone attack. Israel regularly responds with airstrikes against the Houthi leadership, most recently again at the end of September. Israel has also been active in Syria with targeted airstrikes since the fall of Assad, such as on July 15 in Sweida to protect the Druze. The Israeli Air Force continues to operate in Lebanon and acts against Hezbollah activities in the south of the country. This shows that Israel has been fighting an intense and costly war in Gaza for two years, but is also involved in a number of other conflicts in the region that are placing considerable strain on its military capabilities and changing the region forever.

Fragmentation and polarization in times of war

The political debate in Israel has been dominated by events since October 7: the Hamas attack, the war in Gaza, and the 48 hostages who remain in captivity. Nearly every policy area has been affected. While Israeli parties demonstrated unity after October 7, there is now little sign of this. Instead, politics and society are highly fragmented and polarized.

Two issues currently illustrate this: while reservists bear the brunt of the war, certain population groups remain largely spared. Particularly controversial is the exemption for ultra-Orthodox Jews, who are not drafted into service. This exemption was declared unlawful by the Supreme Court last year, and since then the governing coalition, which includes parties representing the ultra-Orthodox, has been discussing whether and how ultra-Orthodox Jews should be drafted. This unequal treatment is causing growing frustration in the armed forces – with noticeable consequences. According to media reports, while significantly more reservists reported for duty after October 7, 2023, than were called up, the number of reservists who actually reported for duty has since fallen. The armed forces have not yet released any official figures on this. Newspapers report varying figures for the attendance rate of reservists, ranging from around 60 percent[2] to still close to 100 percent.[3] Punitive measures are currently only being implemented in isolated cases. The Israeli government subsequently announced that it would reduce income tax for reservists, depending on the length of their service. In addition, the burden is to be shifted to special forces. It remains to be seen whether these measures will be effective in increasing the attendance of reservists. On the other hand, ultra-Orthodox Jews demonstrated against conscription. The two ultra-Orthodox parties in the governing coalition, Shas and United Torah Judaism, withdrew their ministers and issued an ultimatum to Prime Minister Netanyahu: If no solution is found by October 19, the start of the next session of the Knesset, they intend to withdraw their support in the Knesset, which could lead to the dissolution of parliament and thus to early elections.

The second and most central issue causing deep polarization is how to deal with the hostage negotiations with Hamas. Shortly after the war began, public rallies were held every Saturday evening in Tel Aviv, Jerusalem, and other cities. In connection with these demonstrations, thousands of people came to Jerusalem at the beginning of September 2025 to demonstrate for a deal with Hamas and the release of the hostages on the 700th day after October 7, 2023. While the demonstrators are initially demanding the release of all hostages and only then the decisive fight against Hamas, Netanyahu and his government promise the destruction of Hamas, which should be followed by the release of all hostages. In terms of structure and dynamics, the protests for the release of the hostages are very similar to the demonstrations against the judicial reform – many people, networks, and symbols characterize both movements. When the government began the process of dismissing Attorney General Gali Baharav-Miara in March, large protests broke out the following Saturday over the hostages, the planned dismissal, and the ongoing judicial reform.

According to a recent survey by the Israeli Democracy Institute (IDI), around two-thirds of respondents support an agreement in which all hostages are released, all fighting is ceased , and Israel withdraws from its positions in the Gaza Strip.[4] More than half of voters for Likud and the ultra-Orthodox parties—the central parties in the current governing coalition—are in favour of such an agreement. Similar results, especially among voters for the governing coalition, were found in a survey conducted by the daily newspaper Maariv at the end of September on Trump's new 21-point plan for peace negotiations in the Middle East.[5] Nevertheless, there are significant differences between left-wing and right-wing voters in their respective attitudes toward the government's work. A vast majority of voters on the left of the political spectrum are convinced that the government is doing more to ensure its own political survival than to secure the release of the hostages and end the war. The wound that has remained open in Israel since the Hamas terrorist attack is illustrated by the findings of the IDI survey, according to which more respondents in the Jewish population support the cabinet's recent decision to expand military operations in the Gaza Strip than oppose it. Among Israeli-Arab citizens, however, a very large majority rejects this plan.

Parallel to the further escalation of the war in Gaza and the worsening humanitarian situation there, the international debate on the recognition of a Palestinian state has intensified. Several European countries, including Spain and Norway, already decided to recognize Palestine in 2024. This is also linked to the recent announcement by EU Commission President Ursula von der Leyen that she intends to suspend some aid programs with Israel. At the UN General Assembly at the end of September 2025, France and Belgium, among others, announced that they would also recognize a Palestinian state. In Israel, this is criticized as a dangerous precedent and a "reward for terror." Within the coalition, there are also growing calls for irreversible territorial steps, including the annexation of parts of the West Bank, in response to these developments – despite opposition from US President Trump. Israel's government is under growing international pressure – and at the same time feels increasingly isolated.

Where does the economy stand after two years of war?

The ongoing war on multiple fronts has hit Israel's economy hard. This is all the more devastating because the country was actually back on a stable growth path after the pandemic years. In the five years before the pandemic (2015–2019), the Israeli economy grew by an average of 3.7 percent per year. In 2023, growth slowed to 1.8 percent because the economy slumped by 5 percent in the last quarter of the year due to the terrorist attack on October 7, 2023, and the subsequent war. In 2024, growth of 0.9 percent was still achieved.[6] In June 2025, the OECD forecast growth of 3.3 percent – close to the pre-crisis level.[7] This was based on the easing of tensions on the northern border. However, this expectation was dashed by the war against Iran. According to the Israeli Statistical Authority, the economy shrank by 3.5 percent in the second quarter of 2025: stores remained closed, flights were cancelled, and investments were halted.[8] This makes it clear that as long as Israel remains embroiled in large-scale military conflicts, reliable growth forecasts are virtually impossible.

Since October 7, 2023, international confidence in Israel has also declined significantly. Foreign direct investment in 2024 amounted to US$16.8 billion – the lowest level since 2017. In 2022, the year before the Hamas attack, it had reached its highest level in over 15 years at US$22.9 billion.[9] Tourism has also collapsed. Before the pandemic, more than four million visitors came each year, contributing more than five percent to GDP. In 2023, the figure was 3.2 million – a clear sign of recovery after Covid.[10] In 2024, the number fell dramatically again to less than one million.[11]

The labour market is suffering from double pressure: the loss of Palestinian workers and the heavy burden of reservist call-ups. After October 7, almost all work permits for Palestinians from Gaza and the West Bank were cancelled. Previously, around 164,000 Palestinians had worked in Israel or settlements[12] , including 18,000 from Gaza – indispensable for the construction industry and agriculture. So far, it has not been possible to compensate for this with workers from other countries, especially Asian countries. [13]

Added to this was the mobilization of up to 300,000 reservists at the end of 2023, later expanded to up to 450,000 in May 2025. Before the war, reserve service accounted for less than 0.1 percent of all working hours; in the last quarter of 2023, the share was five percent. In 2024, it fell to about one percent—still ten times higher than before the war and a significant burden on the Israeli economy.[14] Particularly painful is the slump in the high-tech sector, Israel's most important engine of growth and innovation. Around 12 percent of the workforce is employed in this sector, which generates around 20 percent of GDP and accounts for 25 percent of total income tax revenue. In 2024, the number of people employed in this sector declined for the first time in a decade.[15] If this trend continues, Israel's most important industry is at risk of suffering lasting damage.

The costs of the war are also limiting the government's financial ability to respond to the problems. According to the Swedish research institute SIPRI, defence spending as a percentage of GDP rose from 5.4 percent in 2023 to 8.8 percent in 2024[16] , with defence spending remaining at a similar level in 2025.[17] New debt reached almost 5 percent of GDP, despite higher VAT and social security contributions. The rising level of new debt shows that fiscal leeway is shrinking. And yet Israel still has better economic indicators than some Western European countries – a paradox that underscores the resilience of the Israeli economy, including the impressive strength of the IT sector with mega-deals such as the sale of CyberArk and Wiz to US technology companies.

How are the Israelis doing?

The Israeli healthcare system proved its effectiveness after October 7, 2023, and during the attacks by Iran. For example, when Iranian missiles hit the Soroka Medical Center in Beer Sheva on June 19, 2025, patients were quickly evacuated to other hospitals and care was maintained.

However, the psychological consequences of the past two years are far more challenging. The Hamas attack and the ongoing war in Gaza are placing a heavy strain on society, especially after the traumatic experience of the pandemic. One indicator of this is ERAN (Emotional First Aid), a contact point for psychological help by telephone or via the Internet. Since October 7, ERAN has registered over 500,000 calls, 100,000 of which were from minors – equivalent to around five percent of the population. The number of people diagnosed with PTSD in Israel has doubled since October 7. The same is true for depression and anxiety disorders.[18] The number of Israelis living near the Gaza Strip who regularly need to take prescription antidepressants has quadrupled.[19] According to the ICA, the Israeli Center for Addiction, one in three Israelis between the ages of 18 and 26 is at risk of developing an addiction – or has already developed one. The consumption of alcohol, cigarettes, drugs, and the like has risen significantly in this age group. The increase in consumption was most pronounced in areas surrounding the Gaza Strip.[20]

Israeli soldiers are a particularly affected group. Since October 7, 2023, 6,218 soldiers of the Israeli armed forces have been wounded (as of September 6, 2025). Since the ground offensive began in October 2023, 456 Israeli soldiers have been killed.[21] More than 30 soldiers have taken their own lives since the start of the war, 21 of them in 2024 – the highest number since 2011.[22] Rates of PTSD have also risen significantly among soldiers and reservists. Since the start of the war, around 4,000 soldiers have sought psychological help from the armed forces. Before the war began, the annual average was 270.[23] Reservists are also severely affected: according to estimates, around half of them suffer from PTSD or other mental health problems; they also make up most of those wounded. Their mental health problems are more difficult to identify, as some of them only seek psychological help in their private lives after completing their reserve service.[24] Reservists also experience mental stress due to economic uncertainty. According to a survey by the Israeli Employment Service, like the German Federal Employment Agency, 75 percent of reservists suffer economic disadvantages as a result of their call-up, with half of them describing the impact as "significant." Around 20 percent even fear losing their jobs after returning to civilian life.[25]

Outlook: Israel faces decisive elections

The world after October 7, 2023, is not the same for Israel as it was before: it is clear to Israel and Israelis that compromises on their own security can no longer be accepted. Hamas' terrorist attacks have shaken the state to its foundations and damaged the trust of many citizens in its institutions. Much remains unclear, especially the outcome of the war in Gaza and the fate of the hostages. Following the recent announcement of Trump's new plan for peace in the region, made in the presence of Netanyahu, there is indeed hope — but many questions remain unanswered. In particular, it is unclear whether Israeli ministers Ben-Gvir and Smotrich will remain part of the government during the implementation, and whether Hamas will agree to the plan at all. These developments will shape Israeli politics and society, foreign relations with Germany and Europe, as well as with neighbouring states and the wider world.

In mid-October, the Knesset will reconvene after the summer recess and the Jewish holidays. Will Prime Minister Netanyahu succeed in keeping his government together, or will the parliament be dissolved? One thing is certain: the next parliamentary elections will take place at the latest in 2026. The regular election date is scheduled for October 2026. If the coalition breaks up, elections could be held even earlier. The upcoming election is one of the most important in recent decades for the future of the country. Will Netanyahu succeed in winning re-election despite October 7, or will he be replaced? Will a stable coalition be formed, or will there be tough political negotiations with repeated parliamentary elections, as was the case in 2019-2022?

The number of parties that have already announced their intention to run in the upcoming election is considerable. A selection: Former Prime Minister Naftali Bennet is returning, former Mossad director Yossi Cohen and former Chief of Staff Gadi Eisenkot, formerly a member of Blue and White, are each planning to form their own parties. Former Communications Minister Yoaz Hendel has also announced that he will compete for seats in the upcoming elections with his newly founded Reservist Party. It is currently unclear which parties will make it into the Knesset. According to media reports, some figures in the opposition, including Eisenkot, Yair Lapid, Bennet, and Avigdor Liebermann, are working to form a coalition that can replace the current governing coalition. Polls should still be read with great caution at this stage. As things stand, there will be a battle between Likud and the Bennet party for victory in the election if no other alliances are formed before the elections. The current governing coalition does not have a majority in the polls,[26] so that, as things stand, Netanyahu's re-election as prime minister is in jeopardy but not out of the question.

Furthermore, Israel faces an even bigger question: How can a country that has been at war for two years renew its democracy, restore social cohesion, and at the same time ensure its security in an extremely challenging environment? The answer to this question will determine not only Israel's future, but also the stability of the Middle East and the relationship of Western democracies with a key partner in the region.

[1] Britannica, Israel-Hamas War - Ceasefire and hostage exchange (January–March 2025) | Britannica [September 22, 2025].

[2] KAN, 85% or 50%? Bluff of the data for reporting for reserve duty [September 22, 2025] & NYTimes, Israel’s Exhausted Soldiers Complicate Plans for Gaza Assault [August 28, 2025].

[3] ToI, Sharp drop seen in reservist response rate due to burnout amid long war [September 22, 2025] & The Guardian, ‘We are dying for no reason’: Israeli reservists face fresh call-up for a war dividing their nation [September 2, 2025]

[4] IDI, Even on the Right, Largest Share of Israelis Support Hostage Deal That Includes Full Withdrawal from Gaza - The Israel Democracy Institute [September 27, 2025].

[5] JPost, Nearly half of Netanyahu voters support Trump’s 21-point Gaza plan [September 27, 2025].

[6] World Bank, GDP growth (annual %) - Israel [September 17, 2025].      

[7] OECD, OECD Economic Outlook, Volume 2025 Issue 1 – Israel [September 22, 2025].

[8] ToI, Israel’s economy slumps 3.5%, as Iran war squeezes consumer spending and business [September 22, 2025].

[9] World Bank, FDI, net inflows, current US$ - Israel [July 3, 2025].

[10] Central Bureau of Statistics – State of Israel, Tourism and Hotel Services Statistics Quarterly, Volume 53, No. 1, Jerusalem, April 2025, PDF, p. 29 [September 22, 2025].

[11] Central Bureau of Statistics – State of Israel, Tourism and Hotel Services Statistics Quarterly, Volume 53, No. 1, Jerusalem, April 2025, PDF, p. 29 [September 22, 2025].

[12] PCBS, Basic Results of the Second Quarterly Labor Force Survey Session, April-June 2023, [August 22, 2025].

[13] AP News, Israel deports thousands of Palestinian workers back to Gaza’s war zone [September 22, 2025].

[14] IDI, The Burden of Reserve Duty on the Working Population in Israel [September 22, 2025].

[15] DW, Can Israel's economy withstand multiple conflicts? [September 22, 2025].

[16] SIPRI, SIPRI Military Expenditure Database [September 22, 2025].

[17] ToI, Israel leads global surge in military spending, with steepest increase since 1967 [September 22, 2025].

[18] Neria, Yuval et al. (2025): Israeli mental health in the aftermath of the October 7 terrorist attack: risks, challenges, and recommendations, Israel Journal of Health Policy Research 14 (1), p. 2-3 [September 22, 2025].

[19] JPost, Report highlights challenges in Israel’s healthcare system post-Oct 7 [September 22, 2025].

[20] JPost, The war will end, but the habit remains’: Israel’s growing crisis of trauma and addiction [August 19, 2025].

[21] Ministry of Foreign Affairs, Swords of Iron: IDF Casualties [September 18, 2025].

[22] JPost, Our Soldiers must not be left to deal with trauma alone – editorial [July 22, 2025].

[23] ToI, Knesset Immigration committee examines mental health challenges faced by IDF’s lone soldiers [August 6, 2025].

[24] ToI, As IDF raises reservist call-up cap to 450,000, wary troops decry low Haredi enlistment [September 22, 2025].

[25] Ynet, The cost of war: 41% of IDF reservists report job loss after prolonged deployment [September 22, 2025].

[26] JPost, Bennett closes election gap against Benjamin Netanyahu | The Jerusalem Post [September 22, 2025].