Does the Israeli economy really need peace? The Prime Minister's Office routinely boasts that growth has outpaced that of other "developed" countries for the past five years, even during 2006, when the country went to war. Business journals report on the more than 80 Israeli and global venture capital funds financing hundreds of start-ups. The April 5 issue of The Economist questions Israel's economic fundamentals, but expresses doubts about such things as the comparatively thin research budgets of its universities, and the transparency of its bureaucracy. "The most serious threat," the magazine writes, is not political violence, but "the state of the education system." The Bank of Israel projects a slowdown to 3.5 percent growth in 2008, but the governor quickly adds that this is still better than the Western average, and blames sluggishness in the U.S. economy. The sluggishness of the peace process, such as it is, doesn't feature in his speeches anymore.

It seems that almost everyone has bought into Benjamin Netanyahu's argument that Israel can enjoy the fruit of its brainpower irrespective of its conflicts; that genius technology incubated by the Israel Defense Forces, and coupled with greater market freedom is the only economic driver Israel really needs. "High-tech" is impervious to war, Bibi once told me in an interview, because "real assets are carried around in people's heads."

And Netanyahu's argument is reassuring, even vaguely hip. It implies that smart people win, markets require no moral apologies, and preparing for war can spur creativity. It therefore suggests - and this is really nice for Netanyahu - that Israelis need not choose between the occupation and their living standards. Alas, that argument is ridiculous.

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