The spiraling conflict with the Palestinians is set to derail a fragile recovery in Israel's all-important tech sector, say investors and analysts, after a global slowdown and the government's divisive judicial reforms saw funding drop sharply this year.

Israel, one of the world’s most innovative high-tech economies, relies on the sector for 14% of its workforce and nearly a fifth of its overall economic output. It has weathered decades of turmoil and is ultimately expected to see investment return once the conflict ends and fundraising globally recovers, they added.

"Overseas investment will slow for the next couple of weeks and months, especially to the extent that there are still hostilities going on," said Jon Medved, Chief Executive of OurCrowd, one of Israel's largest venture capital firms.