Despite the ongoing political and economic upheaval in the Middle East, Israel’s innovative high-tech sector has lost little of its dynamism. The country has sprouted, in just 15 years, into the world’s second most important high-tech cluster after Silicon Valley, and there are now nearly as many Israeli companies listed on NASDAQ as European ones. Last year, Israeli high-tech start-ups attracted $3.2 billion in capital investment, mostly foreign—a 30-fold increase in three years—and more investment per head than any other country. In a land with a population of six million, that capital helped produce 3,000 start-up companies, one for every 2,000 inhabitants.

The NASDAQ meltdown put a damper on the stellar performance of the country’s high-tech cluster, though Israel’s NASDAQ companies have declined far less than the overall average. But the market correction has masked a fundamental shift in the nature of investor interest in the Israeli high-tech economy: from US investors looking for relatively inexpensive ways to expand current operations to an increasingly global pool of investors integrating Israeli innovation into their global strategies. These changes are creating new opportunities.

US investment in Israeli venture capital funds—investment that has been a mainstay of the cluster since it was...