The recently approved plan to conquer the densely populated Gaza City will likely come at a hefty price to Israel’s economy and its residents’ quality of life, according to an economist at the Hebrew University in Jerusalem.

The current plan to expand the nearly two-year-old conflict — which could eventually include a full takeover of the Gaza Strip — already faces widespread condemnation from the international community and is opposed by much of Israel’s general public.

But if Israel chooses to move ahead with the Gaza City plan, it could also cost an estimated NIS 100 billion ($29.2 billion) — five percent of the country’s GDP — said Esteban Klor, a professor of economics at the Hebrew University. This sum includes ballooning military expenditures, as well as a toll on civilian spending and a potential significant curb on investments and exports, he noted.

“If Israel takes full control of Gaza City, not only will Israel have to face direct costs, but there are also indirect costs related to trade boycotts of Israeli companies,” Klor told The Times of Israel.

“I’m very concerned about that possibility, and I don’t think that the Israeli economy can sustain such a huge blow for a continuous period of time,” he said.

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Over the past 22 months, Israel has faced the longest and most intense war in its history, battling the Hamas terror group in addition to military engagements with Iran and its regional proxies. The multifront conflict has thus far cost some NIS 300 billion ($88.5 billion), a figure that has sharply increased government borrowing and the country’s debt burden.

The military mobilized hundreds of thousands of reserve soldiers with the outbreak of the Israel-Hamas war following the October 7, 2023, Hamas-led onslaught, which saw some 1,200 people in southern Israel slaughtered and 251 abducted to the Gaza Strip.

Displaced Palestinians walk through a makeshift camp along the beach in Gaza City, August 10, 2025. (AP Photo/Jehad Alshrafi)

Many reservists have remained in uniform for months throughout the conflict, with only short breaks to see their families and check in at work. The resulting absence of personnel in the employment sector, a major growth engine of the Israeli economy, has disrupted operations — especially of smaller firms — and impaired their ability to raise funding.

Klor, a senior researcher at Israel’s Institute for National Security Studies, estimated that the initial price tag of conquering Gaza City would be somewhere between NIS 25 billion ($7.4 billion) and NIS 50 billion ($14.8 billion), including the costs of mobilizing reserve soldiers, and relocating and supplying the basic needs of a large portion of Gaza’s civilian population.

Esteban Klor, an economics professor at the Hebrew University in Jerusalem. (Jen Klor)

“It’s going to be very costly for the Israeli economy, but the extent of the cost depends on the actual operation that the army will carry out and how many troops, including reserve soldiers, will be needed and for how long, which is still not clear,” said Klor. “Israel may conquer Gaza in three months, but to relocate about 1 million people, Israel will probably have to provide tents and continue to supply basic humanitarian needs, including the provision of food, health services, water, and electricity.”

Absorbing the high military and civilian costs of the new Gaza plan is going to force the government to make tough choices, including either raising taxes or cutting social services such as education, health, and infrastructure, he said.

The new offensive and maintaining security control and civilian governance over the Gaza Strip, potentially for five months or longer, would impose military and financial costs at a particularly challenging time for Israel’s strained state budget and high deficit in an economy challenged by war.

“This new round of fighting in Gaza was not included in the 2025 budget, and there are no reserves there,” said Klor. “Israel will have to absorb these expenses either by further raising taxes or by an increase in the deficit, which is the more likely option before an electoral year.”

Borrowing from tomorrow

Israel financed the ongoing war by borrowing and increasing its debt. The country’s debt-to-GDP ratio has soared from about 60% before the war to about 70%. Just servicing the debt, Israel is paying close to NIS 60 billion ($17.7 billion) in interest annually, said Klor.

“It would not be surprising if intensified fighting in Gaza leads to further downgrades in Israel’s credit rating, which means that we will have to pay even higher interest rates on our increased debt,” said Klor. “Every shekel that Israel pays in interest rates is a shekel that the state can’t invest in education, improving roads, building more hospitals, or lowering taxes.”

“Basically, a downgrade in the Israeli rating means our quality of life is going down,” he warned.

Palestinians rush to collect humanitarian aid airdropped by parachutes into Gaza City, in the northern Gaza Strip, on August 7, 2025. (AP Photo/Jehad Alshrafi)

A lower rating also raises credit costs for businesses and households when financing mortgages or loans. In September, global rating agency Moody’s cut Israel’s credit score by two levels from A2 to Baa1, citing the “diminished quality of Israel’s institutions and governance” in their ability to manage state finances, as well as increased spending needs during the war period.

In July, the rating agency maintained a negative outlook on Israel’s rating, leaving the door open for further rating cuts as it warned about higher defense spending and weaker prospects of government finances and economic growth.

The economy bounced back at the start of 2024 following a 20.8% contraction in the last quarter of 2023 as the outbreak of war with Hamas sharply curtailed consumer spending, trade, and investment. Last year, the economy grew by around 1%, down from 1.8% in 2023 and 6.3% in 2022, before the hostilities.

Moody’s projected that Israel’s economy would grow by 2% in 2025 and by 4.5% in 2026. The forecast is lower than the revised projection by the Bank of Israel for GDP growth of 3.3% in 2025 and 4.6% in 2026.

Earlier this month, the Finance Ministry cut its 2025 growth forecast for the economy from 3.6% to 3.1%, on the assumption that the intensity of fighting in Gaza will continue only until the end of September.

“The new Gaza war plan will delay allowing the economy to get back on track and onto a path of recovery, after almost two years of war,” Klor cautioned.

Illustrative: Protesters hold a banner reading ‘BDS’ (Boycott, Disinvestment, Sanctions) during an anti-Israel rally in support of Palestinians in the Gaza Strip, in Madrid, Spain, March 1, 2024. (Thomas Coex / AFP)

Another blow against public opinion

Even more worrying, the move is feared to fuel negative sentiment among businesses unwilling to trade with Israeli companies and investors not wanting to invest in the country. Norway’s $2 trillion sovereign wealth fund, the world’s largest, said on Monday it plans to divest from more Israeli companies as part of its ongoing review of investments in the country over the situation in Gaza and the West Bank.

Extra unplanned trade and investment losses, plus the military’s initial outlay of up to NIS 50 billion to conquer Gaza City, push up Klor’s estimated price tag to NIS 100 billion.

“Especially in Europe, which is one of Israel’s main trading partners, we could see more calls for sanctions against Israeli companies and divestments,” said Klor. “Even a silent boycott or sanctioning of Israeli companies could lead to lowering GDP by two or three percentage points, or extra losses of NIS 60 billion.”

“That’s very significant and could be the start of a snowball process where people leave the country because they can’t do business from Israel and set up elsewhere. I hope that we don’t reach that point,” he said.