Israel is considered a leader in research and entrepreneurial initiative in the field of artificial intelligence. However, the government is struggling to promote the necessary infrastructure.
Competition stimulates business
The large number of active companies in particular contributes to the success of the AI industry. According to the Israeli non-profit organisation Start-up Nation Central, there were 2,170 AI companies operating in Israel in 2023. This corresponded to just under a third of the country’s high-tech companies.
Israeli AI companies are leveraging these strengths on the global market. Solutions in areas such as cyber security, agriculture, fintech and healthcare are exported on a large scale. But the presence of foreign companies also underlines the international importance of the industry. According to the Israeli Innovation Authority, in addition to domestic companies, around 100 research and development (R&D) centres of multinational corporations are active in the field of AI technology. According to the Innovation Authority, foreign companies whose R&D centres develop AI technologies include Intel, IBM, Nvidia, Google and Microsoft.
The state is lagging behind
According to the RISE Institute’s Israeli AI Landscape analysis published in 2024, the Israeli industry faces three key challenges: a shortage of researchers and experts, inadequate computing infrastructure and a lack of innovation-friendly legal frameworks. The first consequences are already evident. Despite its good ranking in the Tortoise Index for 2024, the trend is downward: in 2019, Israel still ranked 5th. In February 2025, Uri Gabai, Director General of the high-tech research institute RISE, warned in an article for the business newspaper Calcalist: ‘Israel is failing to maintain its international leadership position in the field of AI.’
All three points are related to government policy. Despite their high level of expertise, there are not enough AI specialists available. In particular, higher education institutions are not training enough experts with master’s or postgraduate degrees in AI-related subjects. The private sector cannot build the necessary computing infrastructure for AI research, development and implementation on its own, so greater government involvement is needed here as well. In addition, there is neither a central government agency that provides binding guidance on AI policy nor clear legal regulations on artificial intelligence.
Underfunding slows down development
In November 2024, a report by the Office of the State Comptroller (roughly comparable to the Federal Audit Office) criticised the inadequate funding for AI. In 2022, the Ministry of Innovation, Science and Technology launched a ‘National Programme for Artificial Intelligence’. The programme, which will run until 2027, has earmarked around US$300 million for the development of the sector.
However, this amount is much lower than suggested by two expert commissions. Furthermore, by 2024, only 40 per cent of the funds earmarked for the first phase had been disbursed or allocated for specific purposes in the budget. The lack of funding has hampered both infrastructure development and human capital development.
In a report published in June 2025, experts from the RISE Institute found that elite military units in particular had served as training grounds for IT specialists, which had greatly benefited the private IT sector. In the field of AI, however, the innovation leadership lies with large technology companies, not the military. Greater government support for training is therefore important in order to maintain the competitive advantage of know-how.
Approaches to a strategy are becoming apparent
At least the government has apparently recognised the shortcomings. In April 2025, the Innovation Authority published an AI programme in line with the guidelines of the National Infrastructure Forum for Research and Development. The AI programme aims to expand infrastructure and research, increase the use of AI in the high-tech sector and promote the widespread application of artificial intelligence in the public sector. For use in the high-tech sector, the Innovation Authority advocates increased funding for groundbreaking AI technologies. It is committed to establishing regulatory real-world laboratories in industries with high economic potential, supporting pilot projects, and utilising unique Israeli data resources. The latter include digitised, comprehensive long-term medical data, data in the areas of cyber security and internal security, as well as data on water management and precision agriculture.
There are already concrete implementations of the AI programme: one of the government’s flagship projects is the establishment of a national AI research institute. In May 2025, the Innovation Authority also commissioned the Dutch Nebius Group to build a national supercomputer. This is intended to enable Israeli companies and researchers to train AI models in an economically viable manner, thereby creating fundamental infrastructure.
No AI law has been passed in Israel to date. However, in December 2023, the Ministry of Innovation published principles for an AI policy developed in collaboration with the Ministry of Justice. The principles of the proposed policy are based on the recommendations of the Organisation for Economic Co-operation and Development (OECD), which focus on ‘responsible innovation’. The OECD recommends introducing ethical principles with an emphasis on equality, transparency, reliability, accountability and sustainability. With the right interaction between the state and the economy, AI has great growth potential in Israel. The Israeli ecosystem has in-depth expertise and a fundamental understanding of the needs of the AI industry.
Source and further information: Germany Trade & Invest (in German)