Meanwhile, the government is paying for housing for thousands of people who had to leave their homes in the south near the border with Gaza and in the north where they were exposed to fire from Hezbollah. <\/p>\n

One of the biggest concerns is the open-ended nature of the fighting, which has lasted more than a year. Israel\u2019s economy rebounded quickly from a 2006 war with Hezbollah in southern Lebanon. But that conflict lasted only 34 days. <\/p>\n

Moody\u2019s Ratings cited that idea on September 27, when it lowered the Israeli Government\u2019s credit rating, two notches. The Baa1 rating is still considered investment grade, albeit with moderate risk, according to Moody\u2019s. <\/p>\n

Israel\u2019s economy is hardly collapsing. The country has a diversified, highly developed economy with a strong information-technology sector, which supports tax revenues and defence spending. Unemployment is low, and the TA-35 stock index is up 10.5% on the year. <\/p>\n

Even amid the fighting, tech companies raised some $2.5 billion in capital during the third quarter, according to Zvi Eckstein, head of the Aaron Institute for Economic Policy at Reichman University. <\/p>\n

\u201cIsrael started the war \u201cin the best economic condition\u201d regarding government debt, which stood at a relatively modest 60% of GDP,\u201d Mr. Eckstein said. \u201cWe financed the war mainly with debt,\u201d which has now risen to 62% but is still contained compared with France at 111% and in line with Germany at 63.5%. <\/p>\n

The institute foresees debt reaching 80% of GDP, assuming the fighting does not markedly intensify and some sort of cease-fire or conclusion can be reached by the end of next year. Even then, higher defence spending is likely, especially if Israel maintains a military presence in Gaza after the war. <\/p>\n

Israeli Finance Minister Bezalel Smotrich\u2019s budget for 2025 foresees a deficit of below 4%, saying that will ensure that Israel\u2019s debt burden remains stable. Mr. Smotrich said the country has a stable shekel currency, rising share prices, a tight jobs market, strong tax revenues and access to credit, and a rebounding tech sector. <\/p>\n

Moody\u2019s questioned the deficit figures, forecasting a 6% deficit for next year. <\/p>\n

\u201cThe credit downgrade will lead to higher borrowing costs, meaning Israelis are likely to see cuts to public services and higher taxes,\u201d said Karnit Flug, a former head of Israel\u2019s central bank and now vice president of research at the Israel Democracy Institute. <\/p>\n

Before the war, American military aid to Israel amounted to around $3.8 billion per year under a deal signed during President Barack Obama\u2019s administration. That comes to roughly 14% of Israel\u2019s prewar military spending, much of which goes to U.S. defence companies. <\/p>\n

Since the war in Gaza began and led to escalating conflict across the Middle East, the United States has spent a record of at least $17.9 billion on military aid to Israel, according to a report for Brown University\u2019s Costs of War project that was released on the anniversary of the Hamas attacks on Israel. <\/p>\n

Beyond strictly military aid, the U.S. has offered critical financial support for Israel during times of trouble. Congress in 2003 approved $9 billion in credit guarantees that let Israel borrow at affordable rates after the economy suffered during the so-called second intifada, or Palestinian uprising. <\/p>\n

Some of those guarantees remain unused and could in theory be tapped to stabilise government finances if Israel faces unaffordable borrowing costs. <\/p>\n

The government has convened a commission under former acting national security adviser Jacob Nagel, who negotiated Israel\u2019s most recent U.S. aid package, to offer recommendations on the size of the future defence budget and to assess how increased defence spending could affect the economy. <\/p>\n

Economist Eckstein said a budget that includes some tax increases and cuts in social spending would be needed to support a postwar rebound and pay for likely higher ongoing defence costs. <\/p>\n