Israel claims Jerusalem as its capital, but its de facto annexation of the eastern half of the city is disputed and so all embassies are located here. In some ways, Tel Aviv is defined by what it is not: its great rival, Jerusalem. The pressure cooker city that is holy to all three Abrahamic faiths—Judaism, Christianity, and Islam—can even trigger a kind of clinical religious mania, known as the Jerusalem syndrome. Every summer a handful of tourists succumb, usually in the holiest of places, often believing themselves the new Messiah. Tel Aviv syndrome would be a much more relaxed affair: an addiction, perhaps, to brunch on the beach, lazy afternoons in stylish cafés, dinner in gourmet restaurants, and hopping nightlife. Just an hour's drive down the coast, Qassam rockets fired by Hamas terrorists are smashing into the coastal cities of Sderot and Ashkelon. The sound of the detonations do not pierce the bubble.

Tel Aviv is a city of paradoxes, which makes for a productive creative tension. The first is that it is the center of modern Hebrew culture, where a new national identity was forged, but it's also extremely internationally minded. Most young people speak English and travel as often and as far as they can. Perhaps it's because Tel Aviv faces the ocean, and the west. And also because Israel's Arab neighbors either don't allow Israelis in or are considered too dangerous to visit. When the neighborhood is out of bounds, the wider world seems much more approachable. "Somehow the distance from here to New York or Berlin seems shorter than to Jerusalem or Haifa," says my dinner companion Shlomzion Kenan. A novelist and former book critic for the daily newspapers Ha'aretz and Yediot Aharonot, Shlomzion is a veteran of the Tel Aviv literary scene. Her sister, Rona Kenan, is one of Israel's best-known singers. "Tel Aviv is less nationalistic and more of a melting pot. It's a really international city, a place where cultures meet and evolve."

And do business. If Cairo, Amman, and Beirut aren't interested in Tel Aviv, London, Moscow, and New York most definitely are, although the country has been affected by the global economic downturn. After soaring against the dollar by thirty percent, the shekel is now roughly back to 2007 exchange rates. That helps bring investors to Israel, especially to its renowned high-tech sector, known as Silicon Wadi. Direct foreign investment is expected to total about $10 billion for 2008, half of which went to the high-tech industries. It's an impressive figure considering that neighboring Egypt, with a population of 80 million (more than ten times Israel's) received $13.2 billion for 200708. Israeli GDP grew 4.1 percent in 2008—still respectable, although slower than the 5.4 percent rate of 2007. But while the firsthalf growth was 4.9 percent in annual terms, the second half was just 1.8 percent. Financial authorities predict growth of between one and two percent for 2009. Tel Aviv property prices are also declining, although they're still high in comparison with the country's average wage of $23,000 a year. A three-room, 1,500-square-foot downtown apartment near the beach goes for about $700,000.