In October a US-backed ceasefire came into place for Israel and Hamas, ending two years of grueling war in Gaza, a so-far tenuous ending to what has been a mixed blessing for Israel’s defense industry. The ramifications of the war will continue to reverberate in 2026 — for better or worse.
On the one hand, Israeli military equipment saw combat experience, including in the largely successful air defense mission, helping to prompt sales to reach record levels in 2024, according to Israel’s Ministry of Defense. It’s plausible that sales will continue to have performed well in 2025, especially as Israel has shown it can deliver systems such as Arrow 3 to Germany on time during the conflict.
On the other hand, Israel’s conduct during operations in Gaza also prompted a furious international backlash, including from otherwise potential export customers in Europe.
[This article is one of many in a series in which Breaking Defense reporters look back on the most significant (and entertaining) news stories of 2025 and look forward to what 2026 may hold.]
The European experience is relevant because the 2024 numbers showed that 54 percent of exports went to Europe. Europe is a growing market in part because of the Ukraine war.
Officials in European capitals have said they need to procure systems quickly that have relevance on the modern battlefield, and Israel is well-placed to provide solutions that are often proven because Israel has used them in its multi-front wars.
For instance Israel’s Arrow air defense system, the highest level of its multi-layered defenses, was viewed as performing well not only against drones and missiles launched by the Houthis in Yemen, but against two large Iranian barrages.
In addition its use of new technology, such as AI, and ecosystem of small defense start-ups will fill a number of defense needs locally and abroad. This will be boosted by Israel’s increasing defense budget aimed at strengthening local self-sufficiency.
Looking to potential deals in 2026, air defenses are one place Israel will be looking to increase its footprint abroad in 2026. Reports suggest Greece is looking at a number of Israeli systems, including Rafael Advanced Defense Systems Spyder and the Barak MX system which was recently sold to Thailand. Greece wants an integrated multi-layered air defense system and other countries are following suit.
Israel has already seen radar exports to central European countries, including the similar IAI MMR radars, which are used with Iron Dome in Israel. Existing customers include the Czech Republic and Slovakia.
Meanwhile, Israel will face opportunities and challenges in defense ties with the US in 2026. A 10-year memorandum of understanding with the US, which brought Israel $38 billion in military aid, ends in 2028. Movement toward cementing a new deal will increase in 2026, as will discussions about maintaining Israel’s Qualitative Military Edge amid talk of US sales of F-35s to Saudi Arabia or Turkey.
Current discussions with the Trump administration may seek to change some aspects of the MOU, focusing on joint research and development of systems and emphasizing how Israeli defense technology and systems are increasingly playing a role in the US.
For instance, Iron Dome interceptors are being made in Arkansas as part of a joint venture between Rafael and Raytheon. The R2S joint venture facility opened in November, 2025. Another example is the sale of UVision’s loitering munitions to the US army via a contract with US-based Mistral.
The US military is rushing to expand its use of smaller unmanned aerial systems and also efforts to counter them. Israel’s experience using systems such as the Spike FireFly, a short range loitering munition, or countering them with rifle-mounted systems made by SmartShooter, are all technologies that plug-in well to critical rapid deployment needs for the US military and its defense industry ecosystem.
For Israel and its big three defence companies – Elbit Systems, Rafael and Israel Aerospace Industries – the third frontier after Europe and the US is the Asian market. This includes several key areas, including Israeli joint ventures with Indian firms, as well as increasing sales and ties to countries such as Singapore, South Korea, Thailand, the Philippines and Vietnam.
A third circle in Asia are the Israel-Australian ties. In Australia Israeli systems will continue to see relevance and opportunities, from air defenses to systems like Smartshooter’s counter-drone technology which received a contract for technology evaluation, the company said on December 11.
The result of the two-year, multi-front war Israel fought from 2023-2025 is that it may have been controversial globally in terms of the fighting in Gaza, but for military defense and technology, Israel’s systems all performed well and Israel continued to push forward new technology, such as artificial intelligence and robotics.
As such Israel’s 2026 outlook will focus on it’s multi-layered approach to creating advanced systems. Expensive and complex air defenses, radars and active protection systems will be a mainstay for Israel. In addition, smaller or tailored systems that fit a specific task, such as counter-drone technology, robotics and loitering munitions, or various types of missiles, will continue to define Israel’s global footprint.