Israel’s defense establishment and its hi-tech sector have always been intertwined, but the past two years have transformed that relationship into something far more profound.
What was once a pipeline of veterans from elite units like 8200 founding cybersecurity start-ups has evolved into a full-scale defense-tech ecosystem, one that is expanding at a pace unmatched anywhere in the world.
Israel has spent the last two years fighting in Gaza, Lebanon, Yemen, and even Iran. And while the war has been highly controversial, it has also been a proving ground for the new groundbreaking technologies, many of which are the brainchildren of veterans returning from the battlefields with firsthand knowledge of what warfighters need.
These veterans, many of whom have also spent years in the industry, have founded new defense-tech companies. According to recent industry mapping, Israel’s defense-tech sector has nearly doubled in size since October 7, growing from roughly 160 companies in 2024 to more than 300 active start-ups today.
For a country already known as the Start-Up Nation, the surge is striking, and for the defense establishment, it is becoming indispensable. Israel, many experts are arguing, is becoming the Defense-Tech Nation.
But not everyone agrees. Avi Hasson, CEO of Startup Nation Central, told Defense & Tech (D&T) by The Jerusalem Post that it was “an exaggeration” to call Israel a defense-tech nation, as there are fewer than 400 defense-tech companies. But, he said, “it is undeniably an important and fast-growing sector. And unlike other industries, defense benefits from strong local demand and local procurement.
350 startups: Israel's rapid defense-tech sector growth
“At SNC, we began mapping the Israeli defense-tech sector about 18 months ago. At the time, we identified around 150 companies. Today, that number is close to 350. That’s tremendous growth. Part of it comes from new start-ups, and part from existing companies repositioning themselves as dual-use. Historically, dual-use meant defense first, then civilian. Now it’s the opposite: civilian and commercial companies are adding a defense angle,” Hasson explained.
The shift began with wartime urgency, after October 7 made the country’s vulnerabilities devastatingly clear. As the IDF confronted simultaneous threats from rockets, ballistic missiles, and unmanned aerial vehicles (UAVs) from various fronts, warfighters increasingly turned to civilian innovators for rapid, field-ready solutions.
What started as ad hoc cooperation with no playbook has since become formalized, strategic partnerships.
According to Hasson, the connection between start-ups and the defense sector is actually quite new.
“For many years, defense companies were seen strictly as primes, and venture capital simply wouldn’t go near defense,” he explained.
“But over the past decade, we’ve seen the rise of VC-backed defense companies in the US, like Palantir and Anduril, and it’s no surprise that Israel is now catching up and even punching above its weight.”
Senior defense and industry officials have described to D&T a new model in which start-ups are embedded early in operational planning, providing tools that can be tested, iterated, and deployed in real time.
One source told D&T that of the hundreds of start-ups that were founded over the past two years, many of them have fielded and proved their solutions on the battlefield. And not only has the R&D cycle shortened, many of the concept-to-combat integration processes have accelerated from 800 days to just 80.
“For years, Israel was known worldwide as a cyber nation. Today, we have evolved into a true defense-tech nation,” said Defense Ministry Director-General Amir Baram at the Defense Tech Week conference in early December. “Tel Aviv now ranks as the world’s third leading defense-tech hub.”
Recognizing the strategic importance of this ecosystem, the Israeli government recently launched a state-backed investment initiative aimed at strengthening early-stage defense-tech ventures.
The Defense Ministry has also invested NIS 1.2 billion in start-ups alone, and small and medium-sized companies have signed contracts worth hundreds of millions each.
Last January, the IDF and the ministry opened a Directorate for AI and Autonomy that is aimed at spearheading research, development, and force-building in AI and autonomous systems across the military.
The goals are not only to accelerate innovation but to ensure Israel maintains technological independence in critical domains, because global supply-chain disruptions and shifting geopolitical alliances are reminders that Israel cannot rely solely on foreign suppliers for key defense capabilities.
According to Baram, in 2024 alone, 21 government-to-government agreements were worth billions of shekels, with major defense companies signing “significant” contracts in Europe, Asia, and North America.
According to Hasson, while defense ministries and government agencies are pushing for new policies and procurement reforms, “they still trust their prime contractors, but they can’t wait 15 years for new technology. Start-ups are nimble, innovative, and can deliver solutions now.”
“Last year, total investment in Israeli defense tech was under $180 million. This year, it reached $440m, and most of it came from American investors. The world’s best investors are paying attention to Israeli companies. We’ve always had the right conditions: much of our technology is battle-proven, and we’re now in a perfect storm of rising investor interest, bottom-up innovation, and a global arms race. And the demand for defense technology is growing everywhere and not going anywhere anytime soon,” he said.
One of the most visible symbols of Israel’s technological innovation is the Iron Beam high-energy laser interceptor. Delivered to the IDF in late 2025, the system marks a historic milestone – the world’s first operational laser defense platform capable of neutralizing rockets, drones, and mortars at a fraction of the cost of traditional interceptors.
The Iron Beam is not a replacement for Iron Dome, but a complementary layer designed to handle high-volume, low-cost threats, precisely the kind with which adversaries have been flooding the battlefield.
The primary advantages of a laser system are its precision, rapid response, and cost efficiency. Unlike most traditional kinetic weapons, laser interception systems are designed to detect, engage, and defeat threats within seconds, delivering a highly accurate strike as soon as the threat is identified.
Drone swarms have saturated the battlefield in the Ukraine-Russia war and have emerged as a game-changer. Meanwhile, Israel continues to advance its air defenses, with various updates to the Iron Dome, Arrow, and David’s Sling missile defense systems.
In addition, Israeli companies are also working on other energy shields, such as high-power microwave systems, which use bursts of electromagnetic energy to disable or destroy drones by disrupting their electronic components.
With deep cooperation between established defense giants and agile start-ups specializing in optics, power systems, and AI-driven targeting, Iron Beam’s development also reflects a broader trend of primes working hand in hand with smaller start-ups instead of swallowing them up.
BEYOND AIR defense, Israeli companies are pushing aggressively into AI-enabled command-and-control, autonomous surveillance, and long-endurance drones. Several start-ups have showcased hydrogen-powered UAVs capable of 12-hour missions with significant payload capacity, while others are transforming logistics with autonomous resupply robotic mules.
Systems that once lived only in research labs or movies like autonomous quadcopters that map buildings on entry, drones that can navigate GPS-denied environments, or robotic teams that coordinate without constant human input are now being fielded by frontline units.
Inside the IDF, AI-driven data fusion tools are now central to operational decision-making. These systems can integrate intelligence from multiple theaters, prioritize threats, and recommend responses within seconds. They pull from satellite imagery, SIGINT, UAV feeds, and cyber intelligence to build a unified operational picture that updates continuously.
The war with Hezbollah and Operation Rising Lion against Iran are clear examples of how those tools reshaped not only how the military fights, but how it plans its missions. Target banks were refreshed in near-real time, UAVs patrolled high-risk zones without exposing soldiers, and AI-assisted mission planners helped commanders simulate multiple courses of action before committing troops and risking their lives.
DESPITE POLITICAL tensions and growing antisemitism around the world, demand for Israeli defense technology continues to rise.
In 2024, Israel’s defense exports surged to an unprecedented $14.8b, marking the fourth consecutive year of growth. Key highlights included air defense systems that accounted for nearly half of all exports.
During that year, European nations accounted for 54% of deals, up from 35% the previous year, with missiles, rockets, and air defense systems making up the largest tiers of defense exports.
Germany, historically one of Israel’s staunchest supporters and Israel’s second-largest arms supplier, announced in the summer a suspension of all weapons exports that could be used in Gaza “until further notice.” In November the partial embargo was lifted, but it still struck a worrisome cord for many in the industry.
Nevertheless, in early December, Israel delivered the Arrow 3 missile interceptor to the German Air Force, a historic event for the two countries and Europe.
European militaries increasingly depend on Israeli systems for air defense, cyber protection, and counter-UAV capabilities. In the Gulf and the Indo-Pacific, cooperation has expanded quietly but significantly, driven by shared concerns over Iranian and Chinese aggression and regional instability.
So even with the public animosity, Israel’s defense-tech sector has become not just a domestic asset but a central pillar of its diplomatic and security relationships.
And according to Hasson, the sector is expected to continue to grow.
“There is strong investor appetite, rapid innovation, and expanding global demand. This isn’t a passing trend. It’s not going away anytime soon,” he said.
For all its momentum, the defense-tech boom raises questions about sustainability, regulation, and the balance between military needs and commercial innovation. But for now, the trajectory is clear: Israel is entering a new era in which battlefield challenges and technological creativity feed directly into one another.
In a world where threats are rapidly evolving, the ability to innovate quickly is proving as decisive as any traditional military capability. And Israel, more than ever, is betting that its start-up culture will help secure its future.