What’s happened?

Israel has declared a state of war and called up thousands of reservists after a multi-pronged attack by Hamas, the Islamist group that controls the most densely populated area in the world, the Gaza Strip, which is under a long-running Israeli blockade. Although the Israeli prime minister, Benjamin Netanyahu, has warned of “a long and difficult war”, EIU expects Israel will win a quick military victory. However, Israel is expected to remain without a strategy to achieve a solution to the conflict that the Palestinians could accept.

Why does it matter?

The Hamas incursion into Israel on October 7th, which at one point saw over a dozen villages fall under their control, is viewed as part of a desperate move designed to prevent an Israeli-Saudi rapprochement. EIU believes the timeline for an Israeli-Arab peace deal will become more protracted, given that Israeli reprisals against Gaza are set to be severe. The fact that Hamas has taken hostages significantly complicates Israel’s response. Israel is almost certain to launch a ground invasion and try to rescue the hostages, among its other goals, but will not negotiate with Hamas, and may ask Egypt to help negotiate the release of hostages. Egypt often mediates between Hamas and Israel, and its role in Gaza extends to control of the Rafah border crossing, a lifeline for the territory and the only entry and exit point not controlled by Israel. Questions will be raised in Israel over the serious intelligence failure that allowed this attack to take place. Liberal parties will point to the role of a hard-right Israeli coalition in stoking tensions. The attack may strengthen the hand of Mr Netanyahu, who took office at the end of 2022, at the head of a four-faction, extreme right-religious coalition government. A government of national unity may be formed but will be unable to satisfy Palestinian demands for statehood. The Gaza attack may even fuel opposition in Israel to a two-state solution.

Israeli-Arab rapprochement would leave the Palestinians bereft of meaningful support even in the Arab world. Mr Netanyahu has spoken of the way the establishment of relations with Saudi Arabia would encourage “realism” in the Palestinian leadership. This encapsulates the frustration of the Palestinians, whose aim for statehood is sympathetically looked upon by the UN, but whose cause is rapidly losing urgency in the Arab world. Israel will argue that Iran is behind the Hamas incursion, as the Iranian regime has condemned Arab attempts to move closer to Israel. EIU expects steps towards diplomatic rapprochement between Israel and Arab states may be put on hold for now, but will resume once the conflict ends.

What next?

We do not believe there will be a significant escalation of the conflict, with only limited spillover from Hizbullah, a militant group in Lebanon. However, at the heart of the trouble is the highly complex and long-standing conflict between Arabs and Jews for control of the land, and Palestinian frustration will continue to build.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.