https://www.haaretz.com/israel-news/2025-08-04/ty-article/.premium/netanyahus-gaza-gamble-failed-pushing-israel-toward-economic-catastrophe/00000198-7568-d802-add9-f7ef7b36000Analysis |
Netanyahu's Gaza Gamble Failed, Pushing Israel Toward Economic Catastrophe
Netanyahu's Gaza Gamble Failed, Pushing Israel Toward Economic Catastrophe
Operation Gideon's Chariots was meant to pressure Hamas and dull global focus – but it instead escalated humanitarian, diplomatic, and economic fallout. As Netanyahu flirts with a shift in strategy, Israel faces a costly reckoning over both its war aims and its long-term role in Gaza
Sami Peretz Aug 4, 2025
A Quiet Failure
Israeli government sources say that what they call "Hamas' starvation campaign" has hardened the group's position in the hostage negotiations. Operation Gideon's Chariots, launched by the IDF in Gaza in May, was meant to pressure Hamas into greater flexibility, but the resulting humanitarian crisis in the Strip appears to have had the opposite effect.
As a result, a new approach is gaining traction in Israel: rather than the partial hostage deal Netanyahu has favored throughout the war, a comprehensive agreement is taking shape: one that would secure the release of all hostages and bring the war to an end in exchange for the demilitarization of Gaza.
Just three weeks ago, Netanyahu dismissed the idea of a comprehensive deal in meetings with hostage families, insisting that such an agreement was not feasible.
So what has changed? The prime minister has offered no explanation. "This is just an attempt to buy time and create the appearance of taking initiative," a political source familiar with Netanyahu's modus operandi told Haaretz.
What emerges from this new direction is an implicit, if unspoken, admission of the failure of Operation Gideon's Chariots. The campaign, which deployed five IDF divisions in Gaza, resulted in the deaths of 40 soldiers. Its estimated cost, around 25 billion shekels (approximately $7.3 billion), was driven in part by the large-scale mobilization of reservists.
In addition, the IDF's estimates, as outlined in the original 2025 state budget, were based on maintaining an average of 50,000 reservists. However, as a result of the operation, that number has doubled to approximately 100,000.
The cost of deploying 50,000 reservists is estimated at 2 billion shekels per month (approximately $590 million). As a result, the additional cost of the expanded call-up during the operation effectively doubled that amount, exceeding the budget by 2 billion shekels for every month of the Gaza campaign. This figure does not include the cost of the 12-day Operation Rising Lion in Iran, which is estimated at an additional 22 billion shekels (roughly $6.5 billion).
This is not the only damage. The diplomatic tsunami unleashed by reports of starvation coming from Gaza is inflicting further heavy costs – most notably, the erosion of academic and business partnerships. These repercussions could deepen and persist, especially if the deadlock in hostage negotiations and efforts to end the war continues, and if the IDF escalates its military operations in Gaza.
Unimaginable Price Tag
Israel's President Isaac Herzog shows photos of Israeli hostage Evyatar David at the Presidential palace in Vilnius, Lithuania, Monday.Credit: Mindaugas Kulbis/AP
Economic considerations were largely absent in the early stages of the war. But as the conflict wears on, and as right-wing ministers advance proposals that risk provoking a serious diplomatic crisis, it has become increasingly vital to put those considerations on the table.
The person expected to do this is Finance Minister Bezalel Smotrich, as the one responsible for the state's coffers. But he stands firmly on the opposite side, supporting a full reoccupation of Gaza, the establishment of Israeli settlements in the Strip and the expulsion of its population – all of which would only deepen the diplomatic crisis.
The government is split over the dilemma of whether to pursue a hostage deal that would end the war or to continue fighting, potentially to the point of establishing a military administration in Gaza. For Smotrich, however, there is no dilemma at all.
Last week, at a far-right conference, Smotrich stated that the IDF "must receive an immediate order to conquer the entire Strip in one decisive strike, the city of Gaza and the central refugee camps, to kill all the terrorists and destroy all terrorist infrastructure above and below ground."
Palestinians rush to collect humanitarian aid airdropped by parachutes into Zawaida in the central Gaza Strip, Monday.Credit: Abdel Kareem Hana/AP
"The army needs to impose full military rule over the Strip. Immediately, with full force, without calculation and without pausing for a moment," he added. "Mr. Prime Minister, the time for hesitation and sitting on the horns of the dilemma is over. There's no longer 'both and,' no longer 'neither this nor that.'"
Although Smotrich barely passes the electoral threshold in most polls, his power within the government is significant, especially now, as the ultra-Orthodox parties refuse to join the government unless the bill exempting Haredi men from army conscription is legislated.
Smotrich's statements sound like a campaign stump speech, with no concrete plan behind them to impose military rule in Gaza. His discussions with Finance Ministry officials do not involve planning or budgeting for such a move, but they do include allocating hundreds of millions of shekels for humanitarian aid operations in Gaza. The guiding principle is that Israel does not purchase food for the Gazans but provides all possible logistical support to assist the U.S. aid fund.
The continuation of the war and the push for a military administration will come at an exorbitant cost to Israel, which explains why Smotrich has not even initiated preliminary discussions about it in the Finance Ministry. Military rule is a measure that could last for many years, despite official assurances that it would be temporary, requiring vast human and financial resources and exacting a heavy political and economic toll, some of which Israel is only now beginning to feel.
Palestinians wait to receive food from a charity kitchen, amid a hunger crisis, in Khan Yunis, southern Gaza Strip, on Monday.Credit: Hatem Khaled/Reuters
Relying on tech exit deals to plug the growing holes in the budget will become irrelevant if the political crisis deepens. While ending the war may threaten Netanyahu's government, military rule in Gaza poses a long-term threat to Israel's economy and diplomatic relations – and not only those.
The standard of living for Israelis will sharply decline, and the country risks becoming a pariah state. Even Hamas appears to grasp this reality and remains unfazed by threats of military rule.