Rosh Pina, Israel

Perhaps nowhere else on the globe does there exist a greater discrepancy between perception and reality than Israel. The press portrays the country as a savage land racked by war and terrorism, and many outsiders have the impression that Israelis live their daily lives cowering amongst endless cycles of violence. The reality, though, is a country of 7.4 million people whose stock market and economy are humming along quite nicely (at least in contrast to the rest of the globe) and whose citizens revel in their chic Mediterranean lifestyle.

Anita Blum can't remember the last time her deluxe 100-room resort wasn't fully booked for the weekend. The Hotel Mizpe Hayamim is a well-appointed spa in the Galilee, two hours north of Tel Aviv, and suites go for $500-plus-a-night. Blum charges extra for the therapies--a Thai herbal massage runs $100--and enjoys a 75 percent occupancy rate year-round unchanged by the recent hostilities in Gaza and the world economic crisis.

As you wander around the luxurious grounds and drop $75 on a lunch of beef carpaccio and veal entrecôte with organic vegetables, it's hard to think of Israel as a nation at war. And the guests aren't just the latest batch of Israeli high-tech millionaires. While Blum sees her share of the very rich--she has a helicopter pad, after all--she counts soldiers, schoolteachers, and university students, among her legions of happy clients.

In Israel, life goes on. The Western newspapers just don't notice. They follow instead on a few hackneyed storylines:

n Policemen dragging unwilling Israeli settlers out of their homes.

n Hamas (or Hezbollah) terrorists in menacing black scarves waving machine guns, a subset to the lingering "Palestinian issue."

n Yet another rocket landing near a primary school in Sderot.

n Noisy--and often corrupt--politicians trying to form a coalition amidst a dysfunctional, if vibrantly democratic, government system.

These narratives are real, important, and poignant, but they are only part of the story of a country that has seen 20 years of uninterrupted economic expansion. (Well, mostly uninterrupted. The 2001-02 Intifada and the current economic meltdown took their toll.)

Israel, of course, faces tremendous obstacles. It's tiny, surrounded by enemies, and lacking in natural resources. It has a growing and undereducated Arab population of some 1.45 million whose meager earnings add little to Israel's annual GDP of $199 billion. (Even with its mostly unskilled Arab workforce, Israel's per capita income is around $27,000, on par with those of New Zealand and South Korea.) And there are the 700,000 or so in the ultra-orthodox Jewish community who generally don't pay much in taxes or serve in the army but shamelessly mooch off government welfare. Then there are Israel's major trade partners, who have taken a beating in the global economic crisis, exacerbating Israel's chronic trade deficit. There's also been a notable slowing in Israel's high-tech sector in the last two years. And, with Iran threatening to go nuclear, Israelis fret about their very existence.

But these stories miss the bigger point: Israel today has become a vibrant, functioning jewel of a nation tucked into the eastern flank of the Mediterranean. Tel Aviv looks more like San Diego or Barcelona than Baghdad or Kabul. On a recent five-mile run along Tel Aviv's Gordon Beach, I saw Israeli yuppies cycling the boardwalk on $1,500 Italian mountain bikes, teenagers in full-body wetsuits surfing the breakers, a deep-cleavaged Russian model (nobody seemed to know her name) doing a photo shoot in a skimpy bikini whilst middle-aged Israeli men with potbellies and hairy chests shamelessly gawked, rows of high-priced yachts docked at the Tel Aviv marina, an endless stream of private planes on final approach to small Sde Dov Airport, and two Israeli soldiers in drab green uniforms making out in the sand and drinking Heineken. A nation at war? It seemed more like high season at Coney Island.

"Some first-time visitors are certainly surprised when they don't find tanks and camels in the streets," reports Hanna Munitz, general director of the Israeli Opera. Israel has a world class cultural scene. Want to see Franco Zeffirelli and Daniel Barenboim? No problem. The Alvin Ailey Dance Company visits. The opera plays to audiences at 97 percent capacity. "Just once, another opera manager told me she wouldn't bring her company to Israel because we were 'babykillers' or some nonsense," says Munitz, "but, even at lower pay, we attract the best talents from around the globe. They love coming here!"

It's not only culture. Israel enjoys top universities, upscale restaurants, million-dollar homes, hoity-toity architecture, and the like. Take the economy. In the fourth quarter last year, when the global economy went all to hell, Israel's annual, quarter-over-quarter rate of GDP was only off 0.5 percent, the best figure in the industrialized world. (The United States was off 6.3 percent and Japan 12.1 percent.) "Think about the resistance of our economy in recent times," suggests Zvi Eckstein, deputy governor of the Bank of Israel. "Our prime minister [has a stroke]. The war in Gaza. The war in Lebanon. The government gets replaced. But we've maintained a stable macroeconomic structure and a strong high-tech sector."

What's the secret? Ayelet Nir, chief economist at IBI, an Israeli investment firm, lists six major reasons Israel's economy has done well of late:

n A very conservative banking system--without most of the complex and problematic financial instruments found in the United States.

n No mortgage crisis in a country where putting 50 percent down isn't unusual, and banks often ask for guarantors.

n A current account surplus since 2003.

n Negligible inflation.

n Prudent governmental fiscal policy.

n Healthy integration into the world economy.

Last year, 483 Israeli high-tech companies raised a whopping $2.08 billion from local and foreign venture capital investors. (Only U.S. companies raised more.) All the major tech players--Google, Microsoft, IBM--have large research centers in Israel. They go where the talent is.

Take the case of Isaac Berzin, an Israeli inventor and chemical engineer named by Time magazine last year as one of the world's 100 most influential people. He's an MIT-affiliated scientist who discovered a process to extract renewable energy from seaweed and could live anywhere in the world. He and his wife, along with their three daughters, chose Jerusalem. Berzin still has to do his annual stint in the army reserves--where, he complains, he knows the "smell of every dirty sock" in his unit. But Berzin thinks the mandatory military service is very positive for Israel. Virtually every high school senior in Israel takes a battery of tests before being assigned to a military unit. Israel's best and brightest are tapped at this early stage and sent to elite units. Alumni from these elite units form a natural pipeline into Israeli high-tech firms. Think of it as a mixture of Harvard Business School and the Marine Corps.

"Everybody knows everybody else's business," explains Elisha Yanay, the cigar-chomping president of Motorola in Israel. "That leaves no room for B.S. Résumés mean very little in our country. In a few phone calls, you can strip anybody bare--how they did in kindergarten, their military service, whatever. Pretending in our country is just not possible." Israel is today "the third-hottest spot [after Silicon Valley and Boston] for high-tech venture capital in the world," adds Yanay. "We have only 7 million people but make enough noise for 70 million."

Not all of Israel is noisy. The Tel Aviv stock market, in particular, seems one of the world's best-kept secrets. In the last 12 months, amidst the global meltdown, the Tel Aviv-100 has slumped only 15 percent. (By contrast, the U.K.'s FTSE 100 Index is down 24 percent, Japan's Nikkei 225 is off 28 percent, and the S&P 500 Index is down 31 percent.) Some of the Israeli market's resiliency is certainly driven by the continued success of Teva Pharmaceuticals, the massive Israeli generic drug firm, market cap near $42 billion. (Teva's former CFO Dan Suesskind jokingly refers to what he calls the "regret curve"--that is, people who look at the chart of Teva's share price over time and regret not buying the stock.) "Most countries I know would be happy to trade positions with us, at least on the economic front," reports Ben-Zion Zilberfarb, professor of economics at Bar-Ilan University. "Our recession ought to be milder."

And it's not just Israelis who are taking advantage of the boom. A year ago, Carlos Arroyo was whipping passes to Dwight Howard and leading the Orlando Magic into the NBA playoffs. Now it's approaching midnight on a Monday night; Arroyo is just off a nifty 17-point, 4-rebound, 4-assist outing. He's chatting in the bowels of the Nokia Arena about his new life. He's glad to be out of Orlando. "What I really like about this place is the chic, cosmopolitan lifestyle. You go the supermarket, you find amazing food." What city is he talking about? Los Angeles? Toronto? Try Tel Aviv.

Last year, Arroyo accepted a multimillion-dollar offer to play for Israel's best basketball team, Maccabi Tel Aviv, when he could have been suiting up against LeBron and Kobe. Earlier in the year, he told a visiting reporter, "The restaurants [in Israel] are fantastic. There is this one particular Italian restaurant my wife really likes." (Much as he likes Tel Aviv, Arroyo will probably be moving on during the offseason as he and the Maccabi coach didn't mesh.)

Chloelys Restaurant in Tel Aviv is typical of the culinary boom Arroyo's wife so admires. The restaurant's wood flooring is imported from Brazil, its bricks from Belgium, and chef Victor Gloger keeps 7,000 bottles of wine in his cellar. The businessman's special (gilt-head bream fillet on grape leaves with Bulgarian cheese filling) runs $32. On a Monday, the place was jam-packed with wheeler-dealers in open-necked shirts, staid Brooks Brothers-clad business types, college students apparently fortified with Daddy's credit card, and the wife of the Belgian ambassador.

As religious Jews congregate in and around Jerusalem, hip Israelis flock to Tel Aviv. They joke that it's "the new city that never sleeps." Just ask Baltimore-born black rapper Joel Covington, a self-professed Jew--go figure--who performs under the stage name Rebel Sun: "I can take you out on Monday night at 8 P.M., bring you home at 8 A.M., and you'll never see a dull moment. If you want to party in Tel Aviv, just bring a toothbrush and an extra pair of underwear--you never know what you'll find."

One thing that Tel Aviv residents can't find is a cheap place to live. Forget about popping over to Israel to find a bargain apartment. There aren't any. A 3-bedroom flat in a classy high-rise like the Alrov Tower in Tel Aviv will set you back $2 million. What's the asking price for a 1,200-square-foot villa, with pool, on nearby Rehov David Smilansky--roughly akin to Bethesda, but with a shorter commute downtown? Try $4 million. The upside, of course: Buy the villa, and you can walk to the Gucci and Armani shops on nearby Kikar Hamedina Square. Israeli residential real estate prices are off a modest 5-10 percent since the global downturn hit, reports Adina Haham, CEO of Anglo-Saxon Real Estate in Tel Aviv. And prices are already inching back up.

High-tech millionaires own a lot of these homes. "The Israelis you find on the slopes of Aspen, those are mostly high-tech guys," explains Bar-Ilan University's Zilberfarb. How has Israel managed to do so well in high-tech? Every Israeli high-tech player can recite the national data like a bleacher bum spitting out baseball statistics:

n Israel produces more science papers per capita than any other country.

n Israel lags behind only the United States in number of companies listed on NASDAQ.

n Twenty-four percent of Israel's workforce has a university degree; only the United States and Holland have a higher number.

n Israel leads the world in scientists and technicians per capita.

Why has this produced a tech boom? There are as many theories as there are Israelis, it seems, but the most cogent is put forward by Haim Harari, retired president of the Weizmann Institute of Science:

If the science Olympics were held in Europe, we'd be second to none. I claim our success has to do with the national character of Israelis. The Israeli--or Jewish--character--is ambitious, chaotic, undisciplined, unorganized (we don't have a pope), often brilliant, and we think we know better than everybody else all the answers. These are the exact same skills you need in a high-tech start-up, but, of course, we have none of the skills to run a big company.

An alternative theory, espoused by many serious Israelis, is that the prototypical pushy Jewish mother is driving the high-tech boom. Study hard! Make something of your life!

Israeli technology has certainly been a big part of the Internet age. The cell phone? Developed in Israel. Ditto for most of the Windows NT operating system and for voice mail technology. Pentium MMX Chip technology? Designed in Israel. AOL Instant Messenger? Developed in Israel. The list goes on. Firewall security software originated in Israel. The latest breakthrough is the "PillCam," a video camera that can be swallowed and aids physicians in diagnosing intestinal cancer.

"There was a suicide bomber in this very café during the Intifada," says Jonathan Medved over thick coffee at Caffit Café in Jerusalem. He's a transplanted American, prone to loud Hawaiian shirts, and one of Israel's leading venture capitalists. "They managed to get him over there, across the street, and he didn't detonate. That's how we live. And here we are today. Improvisation is our national plan. We are a nation of risk takers." Successful risk takers, by and large, and not just in high-tech.

Take the case of Eli Ben-Zaken. Twenty years ago, he was a smalltime farmer in charge of a chicken shed. He dabbled in wine, then risked all. Today, he's the proud owner of Domaine du Castel, a winery nestled on a gorgeous mountaintop in the rolling Judean Hills. His wine is sold from Hong Kong to Brazil. Walk into Zachys in Scarsdale and a bottle of his 2006 Grand Vin Kosher will set you back $89.99. "I always say, thank God for the snobs," says the understated Ben-Zaken. "They started drinking wine for the wrong reasons, but stayed because they learned to appreciate good wine."

Some Israelis point to the country's unresolved tensions with its Arab neighbors as a factor in its success. "Conflict is also a very strong source of artistic creation," reports Hanan Pomagrin, a well-regarded Israeli architect. "An area in conflict is not always negative; it keeps people alert. I'm not saying that I would not want to see resolution to this conflict, but it also contributes to the huge energy felt when visiting Israel."

That self-same energy has pushed Israelis of all stripes onto the world stage. One is Bar Rafaeli, the shapely Israeli model who appeared on the cover of the latest Sports Illustrated swimsuit issue and who's been romantically linked to Leonardo DiCaprio. Another is Michael Arad, a former soldier in the elite Golani Brigade; in 2004, he won the design competition for the World Trade Center Memorial. And there's Ronen Chen, the Tel Aviv-based designer, whose high-end women's clothes at prices secretaries can afford are found in chic boutiques all around the United States. Then there's the Batsheva Dance Company, an Israeli cultural icon that performs to packed audiences around the globe. And you can't wander into the faculty lounge at an Ivy League school without bumping into a transplanted Israeli.

But Israelis love their home, and with good reason. "You try to find someplace in Tuscany that's as nice as the Galilee," says the Bank of Israel's Eckstein. Wake up in Tel Aviv, and you can be skiing down the slopes at Mt. Hermon after a lovely, if winding, three-hour drive. That's a far sight easier than the haul from the Upper West Side to Stowe. Finish the workday in Jerusalem, and you can be scuba diving in Eilat, on the Red Sea, after a quick flight.

Of course, not all Israelis can afford weekend getaways. There are sordid slums in the country. Among those still struggling mightily: Palestinians and the recent waves of immigrants from Russia and Ethiopia. Even successful Israelis have their issues. Forget about a service industry; Israelis proudly jest that their nation produced the cell phone but not a single decent waiter. It's a nation where rudeness, reckless driving, cheating on your tax returns, and cutting in line are national art forms.

Yet none of this is evident at the beautiful spa at Mizpe Hayamim. The resort may have no bigger fan than Dita Kohl-Roman, who's been vacationing there for more than two decades--since her mother-in-law first took her. "My daughter--a student in physics and Latin at Hebrew University--continues the tradition today," says Kohl-Roman, a director of resource development at Kishorit, a community for those with special needs. "She goes with her boyfriend!"

Anita Blum, the ever-gracious spa owner, is vigilant about the confidentiality of her guests, but her employees can't help but boast about two of the many goats at Blum's magnificent organic farm. One is named "Sharon." The other is named "Stone." Yes, it seems the other Israel--the land not of terrorists but of milk and honey and goats--may finally be being discovered.

Willy Stern, a Nashville-based writer, has reported from six continents.

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