Start-up or upstart?

It's hard to remember that Israel is downtrodden and beset by enemies on every side standing outside Jaffa Gate looking across a new plaza toward Mamilla Mall. Shopkeepers inside the Old City gate remember when streets were dusty, frequented by Arab merchants dressed in djellabahs doing a riot of trading while mingling with young Jewish men on their way to yeshiva. Even when I first passed through the gate a decade ago, produce was arriving by pushcart.

Today the dust is from a riot of construction and outside the gate stands a gleaming portrait of Israel coming of age. Think southern California. But without the whimsy.

At Mamilla Mall, a Gap store made its Israeli debut last summer, joining Polo Ralph Lauren, Nautica, Tommy Hilfiger, and the Israeli designer Castro. Shoppers stroll through an in- and outdoor pavilion where newly cut limestone abuts old Herodian walkways. Here a Roman water wheel, there a soaring glass wall of draped mannequins.

All this is mere window dressing on the economic powerhouse that Israel has become. Ranking among all nations 96th in population, it is 31st in GDP per capita (at $28,271). Its standing among the Middle East and Gulf states is equally notable: Lacking oil or natural gas resources of its own, Israel nonetheless outstrips all countries of the region for economic output but five (Qatar, Bahrain, UAE, Kuwait, and Cyprus). Only two countries in the world have survived the current recession without a bank failure: Canada and Israel.

Tech companies and investors are beating a path to Israel because it has the world's highest density of start-ups, and "more Israeli companies are listed on the NASDAQ exchange than all companies from the entire European continent," as authors Dan Senor and Saul Singer point out in their 2009 book, Start-Up Nation. Google CEO Eric Schmidt says Israel is the best locale for entrepreneurs after the United States, and Microsoft's Steve Ballmer calls his company "an Israeli company as much as an American company." And Israel achieved much of this expansion and economic good will during the early 2000s, when it faced daily terrorist attacks during the second intifada, and while it launched a new war with Lebanon.

The magnitude of it makes the bickering over construction in older neighborhoods of historic Jerusalem seem petty. Why are Jerusalemites so touchy?

It's easy to see why Palestinian residents feel slighted. In contrast to Israel, the West Bank's numbers are abysmal. GDP per capita there stands at about $3,000-one-tenth the size of its neighbor. It's harder to see why Israelis-with Mamilla Mall, a new bridge, a light rail system under construction, and new white apartment blocks all stretching out from western Jerusalem-also feel compelled to plant enclaves in the Arab neighborhoods of eastern Jerusalem, where the government announced plans for 1,600 new Jewish residences, then added 150 more two weeks later. Prime Minister Benjamin Netanyahu was at first apologetic about the timing of the announcement-just as new U.S.-brokered talks with the Palestinian leadership were to begin-but by last week in Washington he was forceful: "The Jewish people were building Jerusalem 3,000 years ago and the Jewish people are building Jerusalem today. Jerusalem is not a settlement. It's our capital."

"Our capital" presumably means a Jewish capital, which poses a problem for the Arab Muslims, Orthodox, Armenians, European Catholics, Bedouins, and others who also have called it home for centuries. They have a harder time understanding Netanyahu's vehemence while Israel is clearly so successful on its uncontested turf-and the U.S. support for it that flows not only from the American Jewish lobby but from Christian groups who believe that a politically intact Jerusalem under the control of modern Israel is a requirement for the fulfillment of biblical prophecy.

Those groups in recent weeks have made it clear that it's a cardinal sin to question Israel's prerogatives concerning Jerusalem. Yet Israel is no longer the upstart it was when Zionist fighters battled their way to secure a Jewish homeland. It's now "one of the world's foremost idea factories," say the Start-Up Nation writers, with more than half a century of remarkable accomplishment, perseverance, and success in the face of adversity. Shimon Peres said, "The greatest contribution of the Jewish people in history is dissatisfaction. That's poor for politics but good for science." Properly applied, it can be good for politics-and building peace-too. If you have a question or comment for Mindy Belz, send it to mbelz@worldmag.com.