Luxury hotels in the midst of war: why Israel is pushing tourism projects and when foreign guests still do not trust it
Israeli tourism, once one of the more recognizable channels for foreign exchange inflow, employment, and the country’s international visibility, suffered a severe blow after the October 7, 2023 attack and the war that followed, from which it had not fully recovered even by the beginning of 2026. The decline did not hit only hotel companies, carriers, and guides, but also the very image of the country as a destination for holidays, religious travel, and business meetings. That is precisely why it now resonates so strongly that the Israeli authorities, in parallel with the war and security uncertainties, continue to push new hotels, reforms for investors, and plans to expand accommodation capacities. At first glance, this looks like an economic paradox. But from the perspective of a state that has treated tourism for years as an important export sector, this is an attempt to prepare the ground, in a moment of deep crisis, for the post-war period, regardless of how uncertain the return of foreign guests still is.
Before the latest war, Israel had already had experience with sudden tourism oscillations due to security crises, but the scale of the shock after October 7 was different. According to data from the Israeli Central Bureau of Statistics, 2019 was a record year with more than 4.55 million tourists. After pandemic disruptions, 2023 ended with about 3.01 million tourists, but the last quarter was marked by a sudden collapse in arrivals. In 2024, recovery did not follow to the extent the industry had hoped for; instead, the market remained far below pre-crisis levels. For 2025, the Ministry of Tourism spoke of a cautious return and stated that 1.3 million tourists visited the country during that year, which is growth compared to 2024, but still many times less than the levels the sector was used to before the war.
Tourism has fallen, but the state is still building capacity
The main contradiction of Israeli tourism policy today is easy to see: on the one hand, arrivals of foreign guests have remained sensitive to every security incident, and on the other, the state is sending a signal to investors not to stop their projects. Throughout 2025, the Ministry of Tourism emphasized the expansion of hotel supply, incentives for private investors, and reforms that are supposed to speed up the construction or completion of new facilities. In September 2025, support procedures were announced for the construction and expansion of hotels, and Minister Haim Katz said that the country was preparing for the “day after,” with the assessment that tourism infrastructure and additional hotel rooms are one of the drivers of future growth.
In February 2026, the government went a step further and approved a planning reform that allows up to 49 percent of a residential component on land designated for hotel construction. The official explanation states that such a model should help the financial sustainability of projects and increase the number of hotel rooms. In practice, this means an attempt to reduce risk for investors at a time when the classic hotel business model in the country is exposed to prolonged political-security instability. Such logic is not unusual in crisis periods: the state tries to preserve the investment cycle by offering private capital a more flexible calculation, rather than only calls for patience.
But that does not mean market risk has disappeared. Opening luxury or multi-category hotels in an environment where air traffic can be disrupted in just a few hours, and travel insurance can become more expensive or harder to obtain, remains a high-risk business. When investors agree to such projects, they are in fact not investing in current demand, but in an assessment that the security situation will stabilize enough in the medium term for the religious, urban, conference, and leisure segments of the market to function again.
Hotels as a temporary home for evacuees
One of the reasons why the image of Israeli hospitality in recent months does not resemble a typical tourist postcard is the fact that many hotels, after the outbreak of war, took on an extraordinary social and logistical role. The Central Bureau of Statistics explicitly states that, since October 2023, data on hotel overnight stays and revenues also include overnight stays by evacuees, as well as government payments to hotels for their accommodation. In this way, part of the hotel sector became an extended arm of crisis management, rather than of the classic tourism industry.
In its summary of activities for 2025, the Ministry of Tourism stated that hotels hosted around 125 thousand evacuated residents during the crisis. This is a figure that clearly shows how much the sector had been pulled out of its regular market function. For hotel companies, on the one hand, this meant a certain level of occupancy and financial flow at a time when there were almost no foreign guests. On the other hand, such an operating regime is not equivalent to a normal tourist season: the guest structure, prices, additional spending, and reputational effect are completely different. A hotel that serves for months as accommodation for displaced families is not at the same time a hotel that sends the market an image of a relaxed, safe, and attractive destination.
It is precisely this transition from “emergency accommodation” back toward commercial tourism that is one of the most difficult tasks for the Israeli industry. It is not only about technically returning rooms to the market, but also about rebuilding the confidence of tour operators, airlines, insurers, and travelers themselves. Until that process is completed, every announcement of a new hotel acts as an investment in a future narrative, more than in secure present-day profit.
Air connections remain the weak point of recovery
Tourism is not falling only because people do not want to travel to a war zone. It is also falling because travel becomes logistically unpredictable. After October 7, many foreign airlines suspended or reduced flights to Israel, and the rhythm of route returns proved unstable throughout 2025 as well. Some carriers gradually returned to the market, only to suspend service again after new security escalations. In its monthly reports for 2025, the Israel Airports Authority records a traffic recovery in certain months, but the picture remained sensitive to regional developments.
That vulnerability was shown again in 2026 as well. Official and media announcements from March point to new restrictions on operations at Ben Gurion due to security assessments, with additional traffic cuts and disruptions to flight schedules. For tourism, this is a key fact: even when the state can show that it is building new rooms, the market will still first look at whether travelers can actually reach the destination simply and predictably. In that sense, hotel development and air connectivity cannot be viewed separately. Without reliable routes and stable insurance, new accommodation capacities remain infrastructure preparation, but not a guarantee of a rapid recovery.
For international guests, moreover, not only the real security assessment is decisive, but also the perception of risk. A tourist often does not distinguish between individual regions or levels of threat within the country; for him, news of rocket fire, airspace closures, or mass flight cancellations is enough to switch the trip to another destination. That is precisely why reputational damage, which is being discussed increasingly often in Israeli debates, is almost as important as direct financial losses.
Why the authorities still insist on luxury and new projects
To the question of why the state still supports even luxury projects in such circumstances, the answer is partly economic and partly symbolic. Economically, Israel is trying to maintain continuity of investment in a sector that before the war had an important role in employment, spending, and international promotion. Symbolically, the construction of new hotels sends a message of resilience: that the state is not giving up on normalization and that it wants to show that the war, however devastating, will not permanently halt the development of key urban and tourism zones.
The Ministry of Tourism and urban development institutions therefore continue to promote Jerusalem, Tel Aviv, Eilat, the Dead Sea, and other destinations as areas of future growth. The Jerusalem Development Authority continues to communicate state support for the construction and expansion of hotels in the city, including grants that can cover part of the investment. In the background is a simple calculation: if the investment cycle is completely interrupted, the return will be delayed not only by the duration of the war, but also by the additional years needed for projects to be prepared, financed, and built again.
At the same time, the luxury segment also has its own logic. Multi-category and boutique hotels often count on guests with greater purchasing power, business travelers, the Jewish diaspora, religious groups with greater spending power, and niche segments for whom the unique location or symbolic value of the destination is more important than the price. Such a market can recover at a different pace from mass tourism. In other words, investors do not necessarily have to wait for the return of millions of tourists in order to count on the sustainability of certain projects. It is enough for them to believe that the first to return will be those guests who in any case do not make their decision solely according to the price of the package.
Cautious recovery does not erase the depth of the collapse
Official Israeli data and ministry messages provide support for the narrative of recovery, but they do not erase the fact that the level of activity is still far below the historical maximum. When a country falls, after a record 4.55 million tourists in 2019 and 3.01 million in 2023, to levels that in 2025 still amount to around 1.3 million, it is hard to speak of a return to the old normal. This is above all stabilization after collapse, not a full recovery.
The very structure of arrivals also shows a change. The Ministry of Tourism states that among the main source markets of guests in 2025 were the United States, France, and the United Kingdom, while one of the leading motives for travel was visiting relatives and friends. This points to the conclusion that “linked” forms of arrival are returning faster, that is, travel connected with family, religious, or identity motives, than classic leisure tourist traffic. Such a guest profile can help the sector survive, but it is not the same as the broad international return that would fill city hotels, tours, restaurants, and attractions at full capacity.
In that light, the Israeli strategy of tourism development contrary to circumstances is not so much a sign that the crisis is over, as it is a sign that the authorities do not want to allow the crisis to define the next decade. Efforts are being made to maintain projects, make things easier for investors, and prepare additional capacity for the moment when the security picture improves. The only question is how fast that moment will come, how stable it will be, and whether the international market will believe that the risk has indeed been permanently reduced.
Between development policy and wartime reality
Because of all this, the story of new luxury hotels in a war zone cannot be reduced either to simple optimism or to simple condemnation. For the Israeli government and part of the investors, it is an attempt to bridge the crisis through strategic investment and preserve the idea of the country as a destination that can return to the global map. For skeptics, these are development plans that can appear detached from wartime everyday life, humanitarian consequences, and the political cost of the conflict. Both perspectives exist simultaneously, and that is precisely why tourism projects in Israel today carry greater weight than the hotel industry itself: they are both an economic stake, and a political message, and a test of how much a state can try to return to normal while the war is still not completely behind it.
Sources:- Israeli Central Bureau of Statistics – quarterly tourism and hotel industry statistics, including the information that since October 2023 hotel overnight stays and revenues also include evacuees and government payments to hotels (link)
- Israeli Central Bureau of Statistics – annual review of tourist arrivals, with comparisons of 2019, 2023, and 2025 (link)
- Ministry of Tourism of Israel – summary of activities for 2025, including data on 1.3 million tourists, the main outbound markets, and the accommodation of evacuees in hotels (link)
- Ministry of Tourism of Israel – support procedures for the construction and expansion of hotels for 2025, with an emphasis on investment in additional accommodation capacities (link)
- Government of Israel – decision on a planning reform that expands the supply of hotel rooms and permits a residential component on land intended for hotels (link)
- Jerusalem Development Authority – overview of incentives and grants for hotel projects and conference tourism in Jerusalem (link)
- Israel Airports Authority – monthly reports on traffic at Ben Gurion during 2025, as an indicator of partial recovery and the sensitivity of air links (link)
- Ministry of Tourism of Israel – notice to tourists during extraordinary circumstances in June 2025, which shows how much the sector remained tied to crisis management and security procedures (link)
- Wall Street Journal and Associated Press – reports on helping tourists leave Israel during the time of regional escalation in 2025 (link; link)
- Wall Street Journal and other current reports on new restrictions on air traffic and security disruptions in March 2026, important for understanding today’s risk for tourism (link)
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