Abstract
Israel exists in a highly insecure environment. Internally, its occupation of
the Palestinian territories has
led to a prolonged campaign of violence
against both military targets and non-combatants within its own
territory.
Further non-state groups resident in other countries such as Lebanon also
target Israeli forces
with regular violence. Finally, a variety of
external threats exist among Arab and neighbouring countries,
most notably
Iran, that have refused to formally recognise Israel' s existence as a
state.
A final peace settlement between Israel and the Palestinian
Authority (PA) still seems highly unlikely.
Israeli settlement activity in
the West Bank and the final status of Jerusalem will remain key sticking
points in negotiations. In fact in spite of the ceasefire agreed in June and
meant to run until December
2008, the Israeli armed forces were still
exchanging fire and rockets in Gaza towards the end of the year.
Israel' s
defence industry has become the leading sector in the country' s economy. It
benefits from large
amounts of support from the government in the form of
contracts, and the country possesses a welltrained
and well-armed
military. Owing to the constant rigours of urban warfare experienced by
Israeli
troops, the military is highly experienced in low-level warfare.
The armed forces are heavily dominated
by the army, largely owing to the
necessity of land forces as an occupying power. Israel has the region' s
only viable nuclear arsenal, advanced missile capabilities, and is reported to
have pursued other WMD
programmes.
US-Israeli ties are extremely
close, with Israel receiving significant military aid from the US. Israel has
a
well-developed indigenous arms industry and is a significant arms
exporter in its own right. Major
purchasers include India and Turkey. It
is noteworthy that Israel is India’s second-largest supplier of
arms.
From 2009 onwards, we believe that the impact of a slower US economy
and the continuation of tough
credit conditions will take its toll on the
country, with growth expected to come in at 3.2% in 2009,
dropping below
3.0% annually by 2012.
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