On a single Friday in Spring, Gaza had fallen into the hands of Hamas, with masked militants sitting in the president's chair. The West Bank was on the  edge of all out crisis. Israeli army camps were being hastily assembled in the Golan Heights, ready for war with Syria. A spy staellite had just been lauched over Iran. Another war with Hezbollah was a hair trigger war. And in Tel Aviv, a scandal plagued political class was facing a total loss of public faith, with a president enjoying approval ratings of 2 per cent.

As a glance, things were not going well for Israel. But here is a puzzle: why, in the midst of such choas and cranage, was the Israeli economy booming  like it was 1999, with a roaring stock market and growth rates nearing China's and India

New York Times columnist Thomas Friedman recently offered his theory. The Israeli education system and its broader society "nutures and rewards individual imagination." That means that no matter waht messes the politiians are making, Israeli citizens are constatnly spawning ingenious high-tech start ups that that can sell their products and services across the flat world. Freidman made this pronouccement after persuing class projects by students in engineering and computer scienc at Ben-Gurion University. Israel, he said, "Had discovered oil." This oiil, apprently, is located in thee minds of Israel's "young innovators and venture capitalist," who are too busy making mega deals with google and Intel to be held back by politics.

But Friedamn should have looked a litttle closer at the substance of these class projects at Ben Gurion. It's no coincidence that they had names like "Innovatice Covariance that they had names  like " Innovative Covariance Matrix for Point Target Dection in Hyperspectatral Images" and "Algorithms for Obstacle Detection and Avoidance." Those students were busy developing the latest weapons  and surveillance systems for the Israeli state; thirty homeland security companies were launched in Isreal in the first six months of 2007 alone.

So here is another story: Israel's economy isn't booming despite the political chaos that devours the headlines. It is booming despite the political chaos that devours the headlines. It is boooming in large part precisely because of that chaos - because Israel, perhaps more  than any other country,has learned to how to bulid an economy based on on never ending War. This phase of Isreal's economic of Israel's economic development dates back to the mid-nineties, when Israel was in the vanguard of the information revolution. Thanks to innovations in communications, internet, and medical technology, Israel companies took the global economy by storm, with Tel Aviv and haifia famously becoming Middle Easter outposts of Silicon Valley. At the peep of the dot.com bubble, 15 per cent of Isreals gross domestic product came from high tech and about half from exports. That made the Ireal's economy "the most tech-dependent in the world." according to business week - twice as dependent  as that of the United States. Shlomo Ben-Ami, Isreal's foreign ministter under ehud bark, decribed the mid to Late nineties as "One of the most breath  takibg era of economic growth growth and opening up markets in Irael's history.

Because of this dependence on a single sector, when the dot.com bubble burst in 1999, Israel economy was left entirely unprotected. The country went into immidiate freefall, and by June 2001, analysts were predictiing that roughly three hundred high tec Isreali firms would go bankrupt, with tens of thousands of layoffs. The Tel Aviv Newpaper Globe declard in a headline that 2002 was the "Worst Year for Israeli Economy Since 1952." And , yet, somehow, by 2003, Israil was already making a stunning recovery, and by 2004 the country had seemed to pull of a miracle: after its calamitous crash, it was performing better than almost and Western Economy

What saved Israel's economy was the realization by is business and political leader that 9/11 had opened up a new potential market niche for the country, as the world's leading producer of "counter-Terrorism" tools and serviscs. The only reason Israel's post-crash recession was not even more devastating, was that the Israel government quickly intervened with a powerful 10.7 pecent incrase in Military spending, partially financed through cut backs in social sevies. The governemnt also actively encouraged teh tech industry to branch out from information and communication technologies into security survellance. In the perio, Isarel Defense forces played a role similar to business incabator. You Isreal soldires experimented with network systems and surveillance devices while they fulfilled their mandatory military service, then turned their findings into business plans when they returned to civilian life. Like the students Friedman met at Ben_Gurion University, that's when the slew of new security starti[s were launched, specializing in everthing from  "seach and nail" data mining, to surveillance cameras, to terroist profiling.

Today, Israel has an estimated 350 companies dedicated to so-called homeland security - roughly equivalent to the number of companies that went bankrupt when the tech bubble burst. And no wonder: the super-growth that was once provided by the dot-coms  now coming straight from the boom in homeland security.

The timing for this switch was perfect, After Spertmber 11, folloeed by the bombings in Bali, Madrid, and the Landon, Governments around the world were suddenly desparate for terroist hunting tools, as well as for human ntelligence know-how in yhr Arab world. Under the leadership of the lIdu Party, Israeli stat billed itself as a showroom for a cutting edge security state.

In short  Israel learned to to turnn endless war into brand asset, selling its uprooting, occupaton anc containment of Palestinian people as a half-century head start in the Global War on Terror.

The extra-rodinary performance of Israil's homeland security companies is will known to stock watchers, but si rarely discusseed as a factor in the politics of the region. It shold be. It is not a coincidence that the Iraeli state's decision to put "counter-terrorism" at the center of its export economy has concided precisely with is unilateral abandoment of peace negotions, as will as a clear stategy to reframe its conduct with the Palestiians not as a battle against nationalist movement with specific goals for land and rights but rather as part of the gobal War ON Terrror _ one against illogical, fantical forces bent only on destruction.

Now, rather than seeking stability in the interest of economic growth, Israeli Businesses have been some of noisiest cheerleader for war. For instance, in the summer of 2006, when the Israeli government turned what should have been  prisoner exchange with Hezbollah into a full-scale war, Isreal's corporations did not just support the war they sponsered it. Bank Leumi, Ireal's largest bank, distributed bumper stickers with the Slogan "we will be victorious" and We Will Be Stron" and "We Are Strong. While an Israeli jounalist and noveist  Yitzhk Laor wrote at the time, "The current war is the first to beome a branding opportunity for one of our largest mobile phone companies, which is using it to run a hug promtional campaign.