Israel has about ten percent of the world arms trade, and that is expected to increase this year, as annual sales for Israel reach $4 billion. Israel is the largest concentration of high tech research and manufacturing in the Middle East. Actually, in the vast area between Western Europe and Japan, Israel is the only advanced industrial society. Unfortunately, most of the nations in the region (the Moslem ones) want to see Israel destroyed. But the technological superiority of the Israelis makes that goal difficult to attain. The Arabs and Iranians, whose hatred of Israel is intense (you have to read the local Arab and Iranian media to appreciate how rabid the hatred is), can only sputter in frustration as they realize that their means fall far short of their goals. Unable to achieve anything in the present, Israel's enemies go for the long haul. Terrorism is seen as the relentless weapon that will eventually wear the Israelis down and expel them from the Middle East. Terrorism, especially suicide bombings, are hailed as the Arab wonder weapon because it's the only Arab tactic that actually kills Israelis. But again, the Islamic radicals have failed to learn from history. You can't sustain a suicide bomber mentality for more than a generation. The next generation of kids takes a look at the situation and realizes that the enemy isn't Israel, but the Islamic radical leadership. You are already seeing the unrest in several Arab countries and Iran. In Israel, Yassir Arafat's Palestinian Authority (PA) is under attack from the inside for corruption and incompetence. But even the radical Palestinian groups, like Hamas, that want to replace the PA are starting to see signs of disaffection among the population. Many Palestinians are beginning to realize that sometime more is wrong than real estate and governance disputes with Israel.
Meanwhile, Israel continues it's attack on terrorist groups, especially the killing of specific terrorist leaders and specialists (bomb makers and organizers of suicide bombings.) Israel has stepped up it's attacks against the terrorist logistics, closing down more of the tunnels across the Egyptian border (through which weapons and explosives are moved). Another new tactic is cracking down on terrorist finances. With the fall of the Saddam government last year, a major source of financial support for terrorist operations was cut off. The war on terror has also cut down on "charitable" contributions from overseas that funded terrorist attacks against Israel. That leaves Iran backed Hizbollah as the main financial backer for the terrorist attacks against Israel. Hizbollah pays Palestinian terrorist organizations $25,000-40,000 per successful suicide bombing, plus regular salaries for key members of the organizations that plan and carry out the attacks. Israel has targeted the banking system in the Palestinian territories. In addition, Israel has provided documentation (captured in raids in Palestinian territory) European nations showing how charitable contributions are stolen by Palestinian leaders, or diverted to terrorist organizations. The Europeans are pretty intensely anti-Israel at the moment, but the corruption evidence was hard to ignore and some investigations have begun.
Meanwhile, Israel has managed to get it's economy going again, with growth of over two percent for 2004, and adapting to the stresses imposed by the Palestinian suicide bombings. Tourism is starting to rise, and Israeli companies are getting used to not having Palestinian workers (foreign workers are being brought in.) This last point is causing growing discontent with the Palestinian leadership. While Palestinian media still relentlessly preaches the eventual destruction of Israel, in the present, Israel is the best source of employment.