"We are small in size, small in numbers, so we cannot become a big market or a big industry," Peres told The Associated Press. "But Israel can become a daring laboratory."

Peres, a Nobel Peace laureate, promotes Israel as a "green" country and a high-tech powerhouse — including a government plan to install the world's first electric car network by 2011.

Israeli venture capitalists are setting up an online multimedia encyclopedia generated by users, and a product called Pop Tok that sends video clips from movies and TV shows as instant messages.

Yet Israel is also home to Sderot, a town near Hamas-ruled Gaza where people take shelter almost every day to escape militants' rockets. Israelis strive to live normal lives, but they are threatened by Iranian-backed militants on their northern and southern flanks.

They see Iran as their greatest threat, with its nuclear program and a president who calls for Israel's destruction.

Israel's conflict with the Palestinians is the biggest obstacle to normalcy. The fighting has resulted in the displacement of hundreds of thousands of Arabs and has become a rallying point for Muslim extremists worldwide.

Palestinians refer to Israel's creation as 'al-Naqba', or "the catastrophe."

With Israel's occupation of Arab lands captured in the 1967 Mideast war entering its fifth decade, most Palestinians are living in poverty, fueling extremism that can spoil Mideast peacemaking.

Israel at 60 is a place where creativity flourishes, but also where Palestinians are not allowed on West Bank roads reserved for Jews. Israelis argue Palestinians have squandered opportunities for peace. But the expansion of Jewish settlements in the West Bank, even during times of peace negotiations, has deepened Palestinian distrust of Israel's professed willingness to divide the land.

After years of resisting territorial compromise, most Israelis have come to realize their country cannot remain both Jewish and democratic if it holds lands with high Arab birth rates.

Israel's experience with evacuating territory is not a happy one. It withdrew from Gaza three years ago, but Hamas militants eventually took over the territory. This diminished prospects for an Israeli withdrawal from the West Bank — a necessary ingredient of any future peace deal.

Israel has seen miracles before, beginning with its very birth when Jewish fighters pushed back six Arab armies.

Egyptian President Anwar Sadat also did the unthinkable when he came to Jerusalem and then signed a peace treaty with the Jewish state. And the world was stunned by a 1993 handshake on the White House lawn between former archrivals Yitzhak Rabin and Yasser Arafat, raising hopes for peace in the Holy Land.

Copyright 2008 The Associated Press.