Israel launches Gaza ground offensive, raising growth and fiscal risks

ISRAEL - In Brief 02 Sep 2025 by Sani Ziv

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Yesterday, some 40,000 reservists got emergency call-ups as Israel prepares for the “Chariots of Gideon II” operation. The plan is described as a step-by-step move to take control of Gaza. Most senior security officials opposed the government’s decision to start the operation. They preferred the partial hostage deal that Hamas had agreed to two weeks ago. They warned that a wild military operation would increase the risk to the hostage lives. The Chief of Staff also cautioned that any large-scale operation in Gaza would carry a heavy cost in IDF casualties, with fighting expected in densely populated urban areas where militants use civilians as human shields. U.S. officials are reportedly pressing Israel to keep any ground operation limited to a short timeframe of two to three months, without spilling over into 2026. By contrast, Israeli military leaders view the occupation of Gaza City as much longer, raising concerns over whether political and military timetables can be aligned. Another open question is the extent of civilian evacuation: So far, only a few thousand of Gaza’s one million residents have left the city. Fighting in such conditions could mean many civilian casualties Meanwhile, international pressure is building. Belgium announced on Monday that it will recognize a Palestinian state and impose sanctions on Israel, including restrictions on imports from the occupied territories. As we wrote before, a 10% drop in exports due to sanctions, coupled with difficulties importing inputs for production, could slow Israel’s growth and cut tax revenues. On top of that, defense spending is expected to reach about 180 billion shekels in 2025-2026, including the costs ...