Israel's tech war - Radio Islam

Israel´s tech war

Business 2.0, November 2000

Israel has more startups than anywhere outside of Silicon Valley. What's fueling the Internet boom? Soldiers, officers, code-breakers, and spies.

On the northern tip of Tel Aviv, where the old port used to be, sits a nightclub called Dugit. One of many open-air clubs on this stretch of beach, Dugit also rubs shoulders with auto shops, abandoned warehouses, and a pet-supplies store. During most summer evenings, Dugit and the other hot spots here attract some of Tel Aviv's hippest after-hours club crawlers. But one recent sweltering night, Dugit turned into a teeming nest of spies.

They were Israeli soldiers — 300 elite operatives from some of the nation's most secretive high-tech intelligence and electronic warfare units. They were on a mission so sensitive that their superior officers had been deliberately left out of the loop — no need for them to know, and they wouldn't have been happy had they known. Many had been enticed here by one of the oldest tricks in the spy handbook: an invitation from a pretty young woman working for the other side. Some of the operatives were armed, M-16s hanging loosely from their shoulders. All were hunting for what has become one of the most coveted objectives in Israeli intelligence circles today: startup funding.

L'affaire Dugit was, in fact, a recruiting party thrown by a group of Israel's big-gun high-tech companies. The attendees were targeted because they are among the brains behind the Israel Defense Forces, or IDF. They belong to units that dream up the state-of-the-art intelligence and communications technologies that give the IDF its tactical edge. These technological innovations power Israel's far-ranging high-tech boom. In Israel, yesterday's soldier is tomorrow's entrepreneur, and the event's sponsors, established Israeli tech outfits that include Comverse Technology, RoseNet, and Yazam, are trying to get an early line on ideas to fund or geniuses to hire. "We want to make a first contact with young entrepreneurs who are in the midst of forming some technological idea into a business," says Rona Freund-Amitzur, one of the event's organizers. Their tactics for establishing those connections aren't subtle: To lure the mostly young male crowd to this event, the sponsors surreptitiously stationed a group of 20-year-old women outside four different military bases; the women handed out fliers to the soldiers as they entered and left their compounds.

The United States has MIT, Stanford, and a handful of other academic hothouses that nurture the talent and research from which many high-tech powerhouses emerge. In Israel, the military, much to its own discomfort, increasingly plays that role. Since the creation of Israel in 1948, the military has compensated for its lack of resources and manpower with brainpower. Particularly in the past 20 years, the IDF has invested billions of dollars in developing technological warfare. The result is a number of secret, semisecret, and open-secret divisions devoted to coming up with cutting-edge technologies designed to help Israel know what its enemies are doing — and to kill them when the need arises. The units have code names suitable for a spy novel: 8-200, 8153, Mamram, Talpiot, Mamdas. In the incubator of the IDF, those units, as Israelis winkingly call them, have invented or improved technologies used in everything from digital switching to wireless telephony. With the spread of the Internet, the kind of technological wizardry once used to guide missiles, beam secure communications, and break codes suddenly presents enormous commercial opportunities. "By sheer luck," says Professor Shimon Schocken, dean of the school of computer science at the Interdisciplinary Center Herzliya, a private Israeli university, "Israel already had the solutions to so many of the problems of the Internet."

Even a short list of hot tech companies that have recently spun out of Israel's military-technological complex is long. "I came out of one of those units," says Amiram Levinberg, president and co-founder of Gilat Satellite Networks, which last year made more than half of the interactive VSATs (small satellite earth stations used in communications networks) sold in the world.

Several of the founders of Israel's best-known tech success, the Internet security firm Check Point Software Technologies, are former members of 8-200 who specialized in developing firewalls between classified military computer networks. Today, the seven-year-old company has a market cap of $23.4 billion and commands 52 percent of the worldwide market for commercial firewall software. Gideon Hollander, CEO of wireless software maker Jacada, is a veteran of those units, where he worked on artificial intelligence systems. Founders of new startups iWeb (software for delivering Web ads), CTI2 (Web telephony), AudioCodes (voice-compression technology), and hundreds of others are former secret warriors.

All this technological ferment has catapulted Israel into the front ranks of global tech powers — and transformed an economy that just a decade ago was a disaster. There are now more startups in Israel than there are anywhere outside Silicon Valley. Israel, a country of 6 million people, ranks third in the world in the number of Nasdaq-listed companies, behind the United States and Canada. In the mid-1980s, the Israeli government's socialist economic policies had helped produce inflation of 450 percent, and the nation's major export was oranges. Today, inflation is in the single digits and 70 percent of Israel's $35.8 billion in exports comes from the high-tech sector. Thanks mainly to the kick from the tech industry, Israel's economy, stagnant for years, grew 5 percent during the last six months of 1999.

But even as the tech boom energizes the national economy — and, for many citizens, puffs up national pride — it has raised issues that tear at the very fabric of Israel's identity. It turns out that in surprising ways, Israel is ill-equipped for an Internet boom. The challenge facing Israel is captured in two questions that flashed insistently in the smoky, sweaty glow that recent night at the bar of the Dugit: Can the boom last? And if it does, can the military — symbol of Israeli pride, steadfast guardian of national survival — handle it?

Israel is a startup nation. You couldn't design a more fertile ground for entrepreneurship. From the beginning, Israelis have confronted daunting challenges — enemies on all sides, a harsh landscape, embargoes, war — with perseverance and innovation. They like to call themselves natural-born entrepreneurs. "It's in our genes to try and do the impossible here," says Aviv Tzidon, a former fighter pilot and co-founder of BVR Technologies, a high-tech holding company with interest in broadband and wireless technologies. "We're always trying to crack the code."

Israel has a highly educated population, with more engineers per capita (135 per 10,000) than any other nation. The influx of nearly 1 million Russian immigrants — many of them scientists — in the 1990s also provided a tremendous infusion of talent. This is a country that saw an opportunity in its arid climate — 60 percent of its land is desert — and invented drip irrigation. There's a cloak-and-dagger instinct here that has been honed by years of unceasing military alert. In 1966, Israel smuggled a Russian MiG-21 out of Iraq; the secrets learned about the plane were crucial to Israel's defense 10 months later during the Six Day War. (More recently, according to Israeli and international press reports, Israel acquired a urine sample from ailing Syrian president Hafez Assad by clandestinely doctoring a toilet that was set aside for his exclusive use at the funeral of Jordan's King Hussein in February 1999. The toilet's pipes were rerouted to lead to a specimen jar; Israeli agents later analyzed the sample for clues about the Syrian leader's health and concluded that he was living on borrowed time. Assad died 16 months later.)

But it is military intelligence, more than any other single factor, that accounts for Israel's tech prowess. In fact, the demands made by the elite intelligence units seem as if they're meant to be basic training for startup entrepreneurs. Soldiers work in small, highly motivated teams, with brutal hours and little sleep. The pressure to innovate is crushing — national survival is at stake. They must sell their ideas to their commanding officers, or swiftly dream up something else. "The army was the best business school," says Aryeh Finegold, a 53-year-old former paratrooper and one of the designers of a naval antimissile system. He recently founded his third company, Orsus, an e-commerce software maker. As an engineer for Intel in the United States in the 1980s, Finegold was a principal architect of the 286 and 386 chips. One of his previous startups, Mercury Interactive, an e-commerce monitoring software company, has a market cap of about $11.2 billion. "Business is like war, only without the Geneva Convention," says Finegold. Yossi Vardi, a former air force and Ministry of Defense research and development veteran, revered here as one of Israel's high-tech pioneers, says: "The army teaches technology in a very intensive way. It invests a lot of responsibility in 22-year-old kids. They might get a project worth tens of millions of dollars to work on — the kind of experience other people get 10 years later."

Most men and women serve in the military in Israel, which gives the armed services a continuous look at the nation's top young talent. But the IDF has created special systems to identify the country's best and brightest, and to steer them into the most demanding areas of technological warfare and intelligence work. The elite of the elite pass through a program known as Talpiot, set up in the aftermath of the bloody Yom Kippur War in October 1973. Israel eventually prevailed, but in 18 days of fighting, Egypt and Syria inflicted heavy casualties on the much-vaunted Israeli forces. The idea behind Talpiot, says Major Yariv Danziger, "was for a unit to gather geniuses in the army to invent new technologies and weapons." The program was officially started in 1979 with an initial class of 25 "geniuses." Danziger, 34, has headed the program for the past two years.

Think of Talpiot as something like the old East German Olympic athletics program minus the doping. By the time young men and women are inducted into the army at age 18, the IDF has in hand all of their individual psychological and academic records. The IDF is notified of students with top grades, particularly in physics and math. Each September, 3,000 Talpiot candidates submit to a brain-busting battery of intellectual and scientific tests. They undergo heavy psychological profiling, and tests on leadership skills and their ability to work with others. By March, only 35 are left. "The tests are so difficult, most people complete only 20 percent to 40 percent of each exam," says Assaf Monsa, a 29-year-old Talpiot graduate. "Some of the questions are not solvable. They are not meant to be solved. It's to differentiate between the very good and the extraordinarily good." Danziger says he's not sure even a known brain like Bill Gates could cut it. "I think he could pass the intellectual part, but I don't know his human capabilities," the major says. "Is he pleasant to work with? Can he make other people do what he wants without financial authority?" (There's also the question of whether Gates would want to spend at least nine years in the military, as Talpiot graduates must. That's six years more than the minimum requirement for many other Israeli soldiers.)

Talpiot soldiers spend the first three years and four months of their service housed in special barracks at Hebrew University in Jerusalem, where they undertake intensive study in cutting-edge science. They also go through eight months of basic training. After graduation, they spend five years in the unit of their choice; almost all pick one of the elite technical units. "These are the soldiers that all of the units want," says Danziger.

Since Talpiot's inception, only a few hundred people have made it through the program. Their military handiwork is classified, although it is known to have touched everything from algorithm compression to antimissile systems. But Talpiot's role in the current tech boom is no secret. Assaf Monsa and another Talpiot graduate, Yair Mann, along with two other alumni of elite tech units, three years ago founded RichFX, which has developed streaming video technology that Monsa says uses between one-twentieth and one-hundredth of the bandwidth gobbled up by competing systems. (It's used by Neiman Marcus to sell $500-plus shoes over the Internet.) Marius Nacht, another Talpiot grad, is a co-founder of Check Point. Eli Mintz, CEO and president of Compugen, a gene sequencing technology firm, and Yuval Shalom, co-founder and CTO of Wiseband, a maker of wireless phone technologies, also went through Talpiot. "The phrase 'It can't be done' is not for Talpiot," says Ehud Ram, a recently retired high-ranking intelligence officer who worked with some Talpiot grads over the years. (Ram's own background is in geophysics and remote sensing data. During a meeting three years ago, Ram informed Steve Ballmer, then Microsoft's second in command, that he should consider relocating the company's Redmond campus or risk being wiped out by a nearby long-dormant but still dangerous volcano. No word yet from Ballmer, now Microsoft's CEO.)

The demands of Mamram, another elite division, aren't as withering as Talpiot's — the Mamram washout rate is only 50 percent. Mamram, the Hebrew acronym for Central Unit for Data Processing, is the IDF's main computer corps, and trains all military software programmers and network systems architects. Its headquarters, tucked discreetly on a busy street in the commercial Ramat Gan neighborhood of Tel Aviv, looks something like an out-of-date college campus. Project teams work in basement-level offices. There are cubicles and drab cabinetry bought in bulk from Office Depot. "Doesn't it look like a Silicon Valley office?" asks Lieutenant Nimrod Na'amani, the 24-year-old manager of a software system (can't say which one — classified). Sort of, except for the army green uniforms. "We have no casual Friday," quips Lieutenant Colonel Avi Kochva, one of Mamram's top officers. And no foosball table, although Na'amani says Mamram offers its workers something better than foosball: "Guard duty." He's kidding. We think.

Mamram candidates go through a six-month trial of up to 15-hour-a-day course work before they're admitted to the program. Those who make the grade must serve six years, minimum. Still, it is one of the most coveted postings in the military. With torrid demand for programmers in the civilian economy, Mamram grads — known as "jobniks" among soldiers from other units — can command a starting salary three times that of the average Israeli. "Mamram is a brand name," says Kochva. "You can see ads looking for graduates. I get calls from companies wanting to know who wants to be discharged. I don't call them back or I would be on the phone all day."

Then there is 8-200, an electronic warfare unit founded in the early 1960s that many believe has left a bigger mark on the boom than any of Israel's other elite operations. Its name comes from its founding members: 8 Ashkenazi Jews and 200 Iraqi immigrants who were specialists in wireless communications and had worked for Iraqi Railways. Their skills became the cornerstone of the electronic intelligence gathering, encryption, and other activities known to be among the unit's specialties. It's illegal for past and present members to talk about 8-200, although it has become something of an open secret in the tech world. The unit has also attained a mythical status among venture capitalists for the entrepreneurial wizards who are veterans of the unit. Gil Shwed, one of Check Point's founders, allegedly served in 8-200, though he won't confirm that himself. "I had the idea in the army, three years before I started Check Point," Shwed says. "I knew I had a good idea. If you can do it in the military environment, you have the tools to do it in other environments."

Those coming out of the elite units carry away much more than just top-flight technical knowledge and trial-by-fire experience in project design. Many grads of the units say the connections they forge in the military are just as important; they provide instant recruiting networks out in the startup world. The bonds of trust and loyalty can run deep. Four years ago, Erez Marom, a former officer in an intelligence R&D unit, had an idea for a Web telephony technology. But he and his partner needed a crack programmer. Marom knew just where to turn. He called Yoram Naim, who had served with Marom in his technology R&D unit. Naim was working for a military contractor and had just completed a six-month, highly classified project. "Don't ask too many questions," Marom told Naim. "Just resign." Naim wasn't surprised by the cryptic approach. "When we were in the army," Naim recalls, "Erez had said to me, 'Someday I will call you, and I don't care where you'll be.' It had been seven years."

It was all very secret agent-ish. Naim did quit, and began working for what would eventually become CTI2. Marom recruited several other veterans of his old unit (including his brother Alon) and other elite operations. "In the special units in intelligence, most deal with sophisticated telecommunications," says Marom. "People who come from them already come from an atmosphere where they are developing solutions in short periods of time with limited money and manpower." Just what a startup needs, in other words.

CTI2 embodies much of what's going on in Israeli tech today — and how it is sending an electric zap of excitement through Israeli society. CTI2's technology uses the Internet to enable wireless communications — by phone, laptop, Palm Pilot, whatever — from almost anywhere. The company's most recent round of financing valued it at $165 million; CTI2 recently shot down rumors that it was about to be bought by a foreign company — for $1 billion.

Visions of that kind of bonanza stoke Israeli's startup frenzy. But the event that really stirred the Israeli entrepreneurial spirit was the wild success of a little company called Mirabilis. In August 1996, Yossi Vardi — a 57-year-old private investor and entrepreneur who has been a fixture in Israeli high tech for decades — provided seed money for Mirabilis, which consisted of his son Arik, then 26, and three of Arik's buddies. The Mirabilis crew created a real-time instant-messaging system, and called it ICQ (as in "I seek you"). In November 1996, ICQ began offering its messaging service for free over the Internet. After eight months, it had 1 million users. Within 18 months, America Online bought Mirabilis, which had no revenues, for $400 million in cash and stock. At the time, it was the biggest foreign acquisition of an Israeli company ever. The deal made Vardi, his son, and their partners national figures, celebrated the way only rock stars and war heroes had been in Israel before. It also made them rich. And it led to a new Israeli business phrase, the "Mirabilis effect": the notion that anybody with a cool Internet idea and the drive to make it happen might have a shot at sudden fame and instant wealth. "ICQ galvanized the country," says the elder Vardi. "There was a shock wave of pride."

Mirabilis was just the beginning. The record it set was swiftly eclipsed. The new standard for the biggest foreign purchase of an Israeli company is Lucent Technologies's acquisition of Chromatis Networks, a maker of fiber-optic systems, for $4.5 billion in May 2000. Israeli tech executives estimate that more than 2,000 startups have sprouted here in the past couple of years. A recent report on CNET, much cited here, found that of the 10 most popular programs downloaded from the Web, three were invented in Israel: ICQ, Download Accelerator (which speeds up file downloading), and iMesh (which speeds up file searches). Herzliya, a town just north of Tel Aviv that has become home to CTI2 and dozens of other startups, has been dubbed Silicon Wadi (Arabic for dry riverbed). Israeli commentators giddily proclaim the discovery of Internet Israel's "virtual oil field," the long-dreamed-of counterweight to the petro-dollars of some of its Arab rivals.

American high-tech giants like Cisco, Intel, and Motorola — drawn in no small part by the wealth of technical talent coming out of intelligence units — have set up research facilities in Israel. Venture capitalists have followed suit: In 1991, there was one VC fund in Israel; in 2000 there were approximately 130. In April 2000, a group of American investors, including Yahoo's Jerry Yang, eBay's Pierre Omidyar, and Loudcloud's Marc Andreessen, pumped $200 million into Israel Seed Partners, a VC firm in Jerusalem. Everyone, it seems, wants in on the action. "I'm getting calls from every parent with a genius," says Zeev Holtzman, chairman and CEO of Giza Venture Capital. Vardi says he fields about 70 e-mails and countless calls daily from wannabe entrepreneurs. "I was having my eyes checked the other day," he recalls. "The technician says, 'Mr. Vardi, do you have a minute? I have an idea.' "

So what's not to like about the Israeli tech boom? In the minds of a growing number of Israelis, it turns out, quite a lot.

Israel's culture and politics, rooted in socialism, are in many ways a bad fit for the freewheeling dynamism of the boom. In Israel, capital gains are taxed at 50 percent, more than twice the U.S. level. Foreign capital accounts for about a third of the money invested in Israeli tech each year and is still flowing, but its growth rate is slowing, and many tech executives worry that the tax structure will ultimately scare off some foreign investors. Immigration policies — and resistance from Israel's more conservative and economic-nationalist factions — have long thwarted industry's efforts to address a shortage of engineers by temporarily bringing in foreigners. This summer, members of one of Israel's main tech trade groups offered to pay the government $125 million to bring 10,000 foreign engineers to Israel for two years. The government hasn't yet acted on the proposal. "The government has to understand that we are competing with everyone else," says Ami Erel, CEO of Elron, a high-tech holding company. He says turnover among his engineers is 25 percent, despite offerings of stock options, recruiting bonuses, and cars.

More critical is a shortage of management expertise. That reflects, in part, the speed at which Israel is churning out entrepreneurial ideas and the relative youth of its high-tech industry. There hasn't been time for a strong management generation to come of age. But the result is that Israel doesn't have enough experienced managers to nurture the flood of fledgling tech companies. Itamar Rabinovich, president of Tel Aviv University, says Israel is a nation of serial entrepreneurs — he likens them to Jim Clark, the American founder of Silicon Graphics, Netscape, and other companies — who are good at dreaming up companies, but less good at developing them into long-term enterprises. "Jim Clark is like an Israeli," he says. "This country has too many Jim Clarks and too few traditional American executives. We have thousands of startups, but only 50 or 60 medium-size companies." To address the problem, the university is launching a high-tech management school next October.

These problems fuel what many Israelis fear will become a permanent high-tech diaspora. About 90 percent of Israeli startups are incorporated not in Israel but in the United States. That's in part because the United States is such a huge market, but it's also because the country has a less troublesome tax regime and deep ranks of managerial and marketing expertise from which Israeli companies can draw. Some of Israel's largest and most successful tech companies call the United States home: Comverse, a voice messaging company with a market cap of $14.9 billion, is based in Woodbury, N.Y.; Mercury Interactive is based in Sunnyvale, Calif. More common these days is what's known as the fast exit, whereby startups either sell out to a foreign multinational entirely or split themselves in two, keeping R&D in Israel but moving sales and marketing to the United States. CTI2's Marom set up a sales and customer support operation in Burlington, Mass., in fall of 1999; he sees his homeland as a tech way station, far from the heart of the action. "Israel is only a place to sleep," says Marom. "It's good to dream of building a great worldwide company in Israel, but the reality is that most of the money and power sits in the U.S."

That may be, but seeing so many of its best tech minds and ideas either light out for foreign shores or get bought by foreign companies is deeply troubling to many Israelis. Zionism's emphasis on community over the individual is losing ground. National icons like the kibbutznik have pretty much been replaced by the startupnik.

And it's not just the brain drain. While many Israelis find inspiration in the tales of sudden personal fortunes created by startup entrepreneurs, others find them simply crass. "High tech is both idolized and envied," says Vardi. "It raised the total economic level of the country, but it also increased the gap" between haves and have-nots. Indeed, economists say only about 100,000 Israelis have benefited directly from the boom; other sectors of the economy are still stagnant, and unemployment is still 9 percent despite all the tech action. Others worry about what the glorification of instant wealth is doing to the national character. "Ten years ago, an engineer asked, 'What project can I work on now?' " laments Zvi Marom, CEO of BATM, a maker of digital network switches. "Today, he asks how many options can he have."

The dilemmas posed by the boom hit home hardest in Israel's security forces. Long before startup fever, the military had been a potent symbol of national pride and excellence. But now some of its best minds, the highly specialized technical elite, are rejecting military careers to chase startup glory. Just how much of a challenge the security apparatus faces was driven home in July, when a newspaper ad appeared in Israeli's major dailies. "We offer you a future and a horizon of service in a field in which you will be able to contribute to what is dearest to all of us," the ad read. It featured heavy blue doors emblazoned with the state insignia of the menorah, opening over this caption: "The Mossad is Opening Up." Even the Mossad, the storied spy agency, has launched a mass-media recruiting campaign, its first ever, to try to plug personnel holes the agency attributes in large part to the difficulty of competing with the tech industry.

It's not an easy sell. The lure of big money is on soldiers' minds. "It's very hard not to think about it," says Ronny Dukat, a 22-year-old second lieutenant in Mamram who is project manager of a network design team. "My friends are going out there and starting companies." Especially troubling, say Israeli officers, is the number of soldiers working on startups on their own time or secretly moonlighting at tech firms. Under some circumstances, that's illegal in Israel. "If I find out about it, I will punish them," says Lieutenant Colonel Aviad Ben-Izhak of the IDF's Signal Corps. "Without even thinking about it, I would put them in jail."

That prospect is not enough to dissuade some would-be entrepreneurs. Recently, a young air force lieutenant, in uniform, was spotted making the rounds of the startup offices in Herzliya. David Rubin, CEO of Tech Capital, recalls seeing him wandering the 11th-floor hallway of his office building. "I asked him if he needed help," he says. "He said he was an electrical engineer with one year left of service in the air force. He offered to work part-time for a year until the end of his service and then he would be available full-time. He was going office to office, offering his services." Rubin says he declined the lieutenant's offer, but told him to try the sixth floor.

It's the loss of high-ranking intelligence veterans, seemingly military lifers whose rich experience is hard to replace, that makes military leaders most uneasy. Two years ago, Buky Carmeli, 38, left his post as a high-ranking intelligence officer after 17 years of service. He had led a group division working on software, hardware, information and data security, and wireless systems. Eight years ago, he was asked by his commanders to develop a system that would improve audio systems. "I thought, 'Why not take the PC and take a SoundBlaster and create a file and send it through like e-mail?' " Carmeli recalls. He received a certificate of honor from the IDF. About six months later, Carmeli read a newspaper article about an Israeli company called VocalTec and its new technology for sending voice messages over the Internet. "They made a lot of money," Carmeli says, "and I had a certificate of honor from the army." He went home that night and told his wife he was leaving the army so he could start a company. Then he told his commanding officer. "He laughed and said, 'You will be running this unit someday. Money isn't everything,' " Carmeli recalls. Carmeli left anyway. He is now CEO of Spearhead, an Internet data security company. A few months after his discharge, his commanding officer left to join a startup too.

At a time of ragged but persistent peace talks and an increasing sense that the likelihood of all-out war with its neighbors has receded, some Israelis believe the emergence of a high-tech industry that may drag the country deeper into the global economy is a good thing — even if it drains talent from security institutions. The prospect of lasting peace adds to the challenge faced by the military; it's harder to appeal to young tech hotshots by arguing that the nation may be swept into the sea if they don't forgo their startup dreams and stick with their units. Former Mossad chief Shabtai Shavit recently told Israel Radio that the agency must make itself "compatible to a new era of negotiations, of peace efforts and coexistence with our enemies, and maybe even ultimately an era of genuine peace."

The Israeli military, of course, remains a fearsome force, formidable in its region. Still, "the army knows it has a problem," says Lieutenant Colonel Ben-Ishak of the Signal Corps, which deals with the IDF's telecom and wireless systems. "The army needs these soldiers." And the army is trying: It is pushing to increase offers of a paid university education and to raise salaries. There are even rumors that some of the elite units are contemplating giving soldiers cars if they'll stay on after their minimum tours.

Back at the bar of the Dugit, all that seems like pretty pallid stuff. Some of the 300 soldiers who have come to commune with the high-tech recruiters have arrived straight from their bases, many still in uniform. There are splashes of air force blue and knots of army green. Free beer is flowing, and the food is on the house too. A DJ is spinning American tunes. Tech company execs are handing out baseball caps, fanny packs, and information packets. Over the din, Adi Spiegel, a marketing manager for the Israeli office of PricewaterhouseCoopers, one of the bash's sponsors, explains the idea behind the evening. "There is a fight over minds right now," he says. "We're fighting for startups, and the army is fighting to keep people in."

It may be the one war that the fabled Israeli armed forces can't win. Yoni, a 20-year-old engineer in one of those units, talks about his future. "Me and my friends have so many ideas about websites and services," he says. He stands in front of a booth set up by Yazam, a seed fund. He says some of the things he and his intelligence buddies have dreamed up "could work very well on the open market. But the army won't offer me the same amount of money for my knowledge. People are looking to invest in guys like me and my friends from the elite units."

Then Yoni utters words that would make his commanders shudder. "The army tries to keep us, but . . . " He pauses. He says he's out of the military the day he has done the minimum hitch.

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