After 10/7: Heavy Costs Amid a Glimmer of Hope

Four weeks after a tenuous cease-fire was brokered in Gaza, the region is entering a fragile new phase. Major Israel Defense Forces (IDF) operations are paused, Hamas has asserted its commitment to stop fighting, and while there continue to be skirmishes, there is a sense that this moment could open a path toward the oft-discussed “day after.” Yet the calm has also revived intractable questions about what peace, governance, and reconstruction should realistically look like in Gaza—and how regional actors might balance the immediate need for relief with a widespread desire for longer-term political change.

In recent weeks, as momentum builds around the newly agreed cease-fire and hostage-prisoner exchange framework, analysts are increasingly asking whether the reconstruction of Gaza and the reshaping of regional partnerships can sustain momentum. Last month marked the two-year anniversary of October 7, 2023, a date that will live in infamy in the annals of the Middle East. The brutal attack on Israel triggered the latest, and most deadly, round of the long war between Hamas and Israel, which neither wanted nor started this war. Since 10/7, many policymakers and pundits have focused on the day after, planning for what ought to follow for Gaza in the way of governance, humanitarian aid, and reconstruction.

The current agreement — finalized by the United States, Egypt, and Qatar in late October 2025 — secured the release of all 20 surviving Israeli hostages in exchange for roughly 2,000 Palestinian prisoners and detainees. It also commits Israel to a phased withdrawal from populated areas of Gaza and establishes an interim technocratic Palestinian committee to oversee basic governance and reconstruction with international support. The efforts driven by Washington and regional partners hinge on the Administration’s 20-point framework aimed at consolidating the truce: disarmament of Hamas, intensified humanitarian access, major infrastructure repair, and the eventual creation of a special economic zone intended to foster cross-border investment and employment.

There will be no shortage of thorny issues to address, and sequencing them will be critical. For example, hospitals, water treatment plants, and power stations must be rebuilt before longer-term governance and investment projects can be entertained.

Before any discussion of reconstruction, this moment is an occasion to consider this conflict’s many exorbitant costs, which have been borne by so many, first and foremost by Palestinians and Israelis, of course, but also neighboring Arab states, the U.S. and Western powers, and global economic and humanitarian organizations. What follows is a snapshot focused primarily on the costs incurred by Israel: many tangible, others deeply psychological, all of which point to a nation paying an ever-higher price for security.

Financial Costs

In spite of 24 months of fighting, Israeli financial markets have soared — the Tel Aviv Stock Exchange, Israel’s benchmark index, rose 21.3% in the first half of 2025, the shekel (NIS) is strong, and investments have poured in, mostly from abroad, according to Bloomberg reporting. But this does not tell the whole story.

Israel’s credit rating was downgraded several times in 2024 by major agencies S&P, Fitch, and Moody’s, raising borrowing costs. Throughout the conflict, members of Israeli Prime Minister Benjamin Netanyahu’s far-right coalition called for the IDF to fully reoccupy the Gaza Strip, although this prospect seems unlikely at the current juncture. Beyond the humanitarian toll and questionable strategic gains that reoccupation would bring, one Israeli analyst cited senior economic officials’ estimates that reoccupation would cost 180 billion NIS (approximately $54 billion) for the next year. Even a partial reoccupation would incur opportunity costs: reservists serving in Gaza could find their jobs and higher studies disrupted. Money spent financing any troop presence in Gaza is money not spent on Israel’s vibrant start-up and tech ecosystem, nor on other important areas, such as education and infrastructure.

Israel has seen adverse investment reflections. The rate of fundraising by venture capital (VC) funds, Israel’s main vehicle for investment in its privately-held tech companies, is down 40% compared to 2024. The ongoing humanitarian crisis in Gaza has also adversely affected some of Israel’s Western investments. In August, Norway’s sovereign wealth fund, the world’s largest by its $2 trillion assets under management (AUM), divested its positions from U.S. construction giant Caterpillar and five Israeli banks on ethical grounds. In August, Germany instituted a partial arms embargo, preventing the export of weapons to Israel that could be used in the conflict. And in September, Microsoft disabled some of its Azure cloud services in protest of the Israeli Ministry of Defense’s use of these services to surveil Gazan civilians, according to a Wall Street Journal report. Furthermore, European academic boycotts of Israeli universities — threatening billions of euros in EU research funding and longstanding partnerships — underscore the stakes of growing international isolation, which risks deepening damage to Israel’s world-class innovation and R&D ecosystem.

Finally, Israel continues to have one of the highest costs of living among OECD countries. Large-scale protests before 10/7 largely focused not on the fate of the peace process, but rather on domestic economic issues, such as rising food prices. Reports from Israel’s Central Bureau of Statistics that 82,000 Israelis left Israel in 2024 — nearly 48% of whom are between the ages of 20 and 45 and are well-educated — could also negatively impact Israel’s economic competitiveness. According to the Israel Innovation Authority, the country’s brain drain accelerated after October 2023. Earlier this month, Israel unveiled tax incentives, such as exemption from tax on income earned and accrued outside Israel, to encourage the return of high-tech workers.

In the face of these headwinds, Israel’s innovation ecosystem has proven resilient. In its 12-day war with Iran, Israel offered a powerful demonstration of its technological superiority and military dominance. Although Israel has been barred from global defense conferences in Paris and Dubai, sales of Israeli defense products are hitting record levels. So far in 2025, mergers and acquisitions reached a record $71 billion, nearly five times higher than the same period in 2024, driven largely by Alphabet’s $32 billion acquisition of cyber firm Wiz and Palo Alto Networks’ $25 acquisition of CyberArk. These deals signal confidence in Israel’s long-term potential in spite of shorter-term geopolitical volatility.

Humanitarian Costs

As of this writing, the remains of five hostages remain in Gaza. The war has also wrought various overlapping humanitarian catastrophes in Gaza — from famine to preventable disease to mass displacement — with tens of thousands killed, including women and children. According to the World Health Organization, fewer than 20 of Gaza’s 36 hospitals remained even partially functional as of several months ago. The near collapse of Gaza’s sewage pumping and waste treatment facilities has also raised dire public health implications: tens of thousands of cases of hepatitis A have been recorded, in addition to acute diarrhea, scabies, jaundice, and a confirmed case of polio that prompted a vaccination campaign amid the fighting.

Beyond the trauma of the 10/7 attack and Israel’s relentless retaliation, the war’s psychological costs will outlast the fighting. While there is no love lost for any trauma felt by Hamas, tens of thousands of innocent Gazans have experienced mass displacement, death of loved ones, and total destruction of their homes in the process. Fundamentally, the war has further entrenched deeply-held, zero-sum narratives of victimhood and a refusal to make space for the other side’s stories, which has fueled this stubborn conflict for decades, as renowned Israeli historian Yuval Noah Harari has argued.

Diplomatic Costs

Arguably the greatest costs — other than the loss of life and psychological trauma — have been in the diplomatic domain.

Before 10/7, it was reported that Israeli-Saudi normalization was within reach, but today, a Saudi-Israel deal remains elusive. After it was attacked by several Iranian proxies, Israel successfully seized the moment to effectively destroy Iran’s so-called Axis of Resistance, assassinating Hamas, Hezbollah, and Houthi senior commanders in Lebanon, Syria, Yemen, and even Iran itself. However, its airstrikes against Hamas senior leadership in Qatar — a major non-NATO ally and site of al-’Udeid, the largest U.S. military base in the region — were a bridge too far in the eyes of many Arab leaders. Not only did the strike not kill its intended targets, it also caused an uproar in the Gulf and broader Arab world. In early October, President Trump issued an executive order declaring that any strike violating Qatar’s sovereignty would be viewed as a direct threat to U.S. interests.

For its part, days after the attack, Saudi Arabia hosted Pakistani Prime Minister Shebaz Sharif in Riyadh and concluded a strategic mutual defense pact with Pakistan, a nuclear power. This agreement is best viewed as a hedge and simultaneous signal to Washington; Pakistan is not likely to replace the US as the Kingdom’s primary defense partner, but the Qatar strike raised serious questions about U.S. security commitments to its allies.

As if this were not enough, alongside the deteriorating situation in Gaza, some Israeli politicians have made a renewed push for annexation of the West Bank — a longtime goal on the Israeli Right — and speaking from the West Bank settlement of Maale Adumim in early September, Israeli Prime Minister Netanyahu himself vowed there will be no Palestinian state. Emirati leaders forcefully warned Israeli counterparts that annexation is a red line that could very well spell the end of the Abraham Accords and its potential for regional integration.

Critically, the war in Gaza greatly strained Israel’s relationship with the US, the cornerstone of its strategic doctrine for decades. These tensions have included increased scrutiny over U.S. military aid, such as paused shipments in 2024 of 2,000- and 500-pound bombs over concerns they would be used in densely populated areas of Rafah. This strain has also further driven a wedge into America’s Jewish community, the diaspora’s largest and most influential, and has fueled criticism of U.S. support for the Jewish state across the political spectrum. According to a recent Washington Post poll, 61% of American Jews believe Israel committed war crimes, and about 4 in 10 believe the country is guilty of genocide against the Palestinians.

A common Israeli refrain is that more needs to be done in terms of hasbara (public diplomacy and messaging). To be sure, there have been numerous journalistic mishaps and even blatant lapses in standards. For example, following the attack on the al-Ahli Arab Hospital in Gaza City in October 2023, The New York Times reported that Israel had conducted the strike, amplifying claims from Hamas without independent corroboration, when in fact Israel did not carry out the strike, U.S. intelligence officials publicly concluded with high confidence and according to a retraction by the Times’ editors.

Nonetheless, the core issue is the magnitude of destruction and death toll itself, which is now approaching 70,000 and has included the targeting of journalists, aid officials, and hospital workers, rather than one of spin. Recognizing this, numerous Israeli luminaries and dignitaries, from former Shin Bet director Ami Ayalon to literary icon David Grossman to retired prime ministers Ehud Barak and Ehud Olmert and beyond, have sharply criticized the war, which they have said is making Israel more internationally isolated, and even a global pariah.

One related trend is Israeli officials’ growing sanctions liabilities. The UK, Canada, France, Australia, New Zealand, Norway, and Slovenia subjected Israeli Finance Minister Bezal’el Smotrich and National Security Minister Itamar Ben-Gvir to travel bans, asset freezes, and prohibitions from transactions with financial institutions in their countries for incitement to violence and violating Palestinian human rights.

These restrictions are likely to have ripple effects, because the sanctioning countries are major economies and financial and travel screening databases are global. Smotrich, who has self-identified as ‘a fascist homophobe,’ has repeatedly called for Gaza to be totally destroyed and its citizens to be starved and forcibly relocated. Ben-Gvir, who Israeli authorities have convicted multiple times for supporting terror organizations, has called for Gaza to be emptied of Palestinians and for Israel to resettle the territory. Both ministers also support the ethnic cleansing of Gaza, having called for forcible transfer of Palestinians out of the territory and for Israel to reconquer the strip, which could very well spark additional sanctions from EU states. This looming threat is meaningful, as Europe is Israel’s main trading partner.

Total Strategic Cost

To say that the 10/7 pogrom and the multi-front war it unleashed have been very costly is a gross understatement. Wars are often easy to start, but rarely easy to end. Even if they start justly, as with the U.S. invasion of Afghanistan to destroy al-Qa’ida, mission creep can quickly change a conflict’s scope, duration, and intensity, making it orders of magnitude more expensive than envisaged in terms of lives lost, money spent, infrastructure destroyed, and lasting trauma felt. Time and again, decision-makers have set challenging, if not impossible, military objectives when confronting enemies intentionally enmeshed in deeply populated urban areas, from Algeria to Vietnam to Afghanistan to Gaza.

As gruesome and costly as this conflict has been, Israel remains very much a nation at odds with itself. The protest movement against the proposed judicial overhaul that would weaken the Supreme Court, Israel’s only check on executive power, temporarily receded in the face of Gaza, but the issue remains front and center. On both sides of the Atlantic and in the Middle East, Israel is facing not only fraught diplomatic relations and economic uncertainty, but also a combustible source of social and political volatility domestically.

Netanyahu’s comments in mid-September that Israel would have to be a ‘super Sparta’ and a self-sufficient economy with autarkic characteristics risk undoing the very foundations of Israel’s prosperity: its openness, global integration, and role as a magnet for talent, investment, and innovation (Ancient history spoiler alert: Sparta’s pursuit of autarky preserved its independence briefly, but ultimately led to economic stagnation, demographic decline, and strategic weakness that hastened its downfall.) A turn toward self-sufficiency may offer the illusion of temporary security, but it would likely isolate Israel from the very international networks that helped propel it into a start-up powerhouse in the first place, eroding the competitive edge that has long distinguished its economy from those of its neighbors.

In spite of the carnage and despair, a glimmer of possibility remains. If Gaza can one day sustain a functioning economy, anchored in reconstruction, regional trade, and human development — supported by regional leaders such as Egypt, Saudi Arabia, the UAE, and Qatar — it could eventually become a zone of opportunity, rather than fertile ground for Hamas’s bloodthirsty and malignant ideology. While still distant, a future grounded in self-determination in which Gazans can build dignified livelihoods and connect economically and politically with other Palestinians, regional states, and the world, while not imminent, is one worth investing in, and one worth tracking closely in the months and years ahead.

All statements of fact or opinion, or analysis expressed are those of the author and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the author’s views.