When U.S. President Barack Obama visited Israel in March, he stopped at the Israel Museum.

But in addition to a tour of the Dead Sea Scrolls, Mr. Obama met with seven groups of inventors whose products exemplify the best of Israeli innovation.

As part of the demonstration, a paraplegic, strapped into ReWalk, a battery-operated exoskeleton suit created by Argo Medical Technologies, walked confidently around the room. Students from the Technion, Israel's Institute of Technology, operated the Robotic Snake, a miniaturized camera-equipped robot that can slither into hard-to-access disaster sites. And scientists from Mobileye showed how their collision-prevention system can help drivers navigate more safely.

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Choosing seven products couldn't have been easy, given Israelis' talent for innovation in everything from high tech to med tech, solar energy to water recycling.

Second only to Silicon Valley in the number of business startups, according to Startup Genome, a data project that ranks the world's top startup ecosystems, Israel's own "Silicon Wadi" (wadi means valley in Arabic), a tech-rich stretch of land from Tel Aviv northward, is sprouting with creativity.

Israel is ranked 26th of 144 countries by the World Economic Forum's 2012-2013 Global Competitiveness Report. It's also third in innovation, fifth in investor protection and 17th in financial market development.

About 300 multinational companies, including Cisco, Microsoft, IBM, Google and Intel, operate in Israel, according to the trade organization Israel Advanced Technology Industries (IATI). Some manufacture products here while many more operate research and development centres.

Saul Singer, co-author of the book Start-Up Nation, which analyzes the country's tech boom, said Israel receives 2.5 times as much venture capital per capita as the U.S and spends about twice the OECD average on civilian research and development, above and beyond military R&D spending.

"This whole country is a startup," Mr. Singer said. "It took a lot of drive and determination and willingness to take risks to turn Israel into a reality 65 years ago, and those are the hallmarks of entrepreneurship."

That determination has been driven partly by a need to overcome adversity. Surrounded by hostile neighbours, Israel has had to develop ways to grow its own food in inhospitable soil, preserve its scant water supply, build a modern infrastructure and develop sophisticated military technology.

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With a tiny local market, Israeli startups aim internationally "from day one," Mr. Singer said.

He also credits Israel's mandatory military service for teaching the younger generation the values of teamwork, leadership and goal-oriented sacrifice, and mass waves of immigration for spurring growth and introducing new perspectives for tackling problems and challenges.

Jonathan Medved, a Jerusalem-based entrepreneur and CEO of OurCrowd, an equity crowdfunding site for startups around the world, said Israelis "have learned to live with risk and transformed it from a four-letter word into a normal part of everyday life." If a company ultimately fails, "it fails," Mr. Medved says philosophically. "When you live with existential risks, the rest is manageable."

It's relatively easy to raise money for Israeli startups because the industry has such a solid track record, Mr. Medved says. Since 2008, investors have paid roughly $17-billion (U.S.) for almost 300 startups, according to IATI. In fact, Google just acquired Israel-based Waze, a real-time traffic and navigation app, for $1-billion (U.S.), pending an antitrust investigation.

Even so, Israeli universities, which spawn many startups, are facing deep government budget cuts. Venture capital funding is down due to the global economic slowdown.

Also, outside of investment circles, most consumers don't realize just how ubiquitous Israeli innovation is, Mr. Medved says, citing ventures in everything from computer chips and wireless technology to drip irrigation and hardier fruits and vegetables.

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He notes that the Library of Congress uses Ex Libris Israeli software, that Arab countries and the FBI use Israeli video intelligence products, and that BriefCam, an image-processing system that summarizes hours of video, helped authorities find the Boston Marathon bomber.

If the Israeli startup scene has one weakness, analysts say, it is the unwillingness – some say inability – of entrepreneurs to build and keep large innovative ventures in Israel. More often than not, Israeli inventors sell to multinationals that leave little more than R&D operations in Israel.

The majority of startups close up shop following an overseas buyout, according to an Israel Export Institute survey. While the entrepreneurs get rich, the sale usually means Israeli job losses and lower tax revenues.

"What we need to do is turn Israel into a centre for local multinationals," said Ariel Beery, a long-time social entrepreneur and CEO of the Tel Aviv-based biomed startup MobileOCT.

To do that, Mr. Beery said, Israeli entrepreneurs need to study management, consumer infrastructure and customer service – subjects tech geeks rarely pick up at university.

Professor Boaz Golany, vice-president for external relations at the Technion, doesn't dispute the need for startups to adopt better corporate practices, but he also sees an upside when multinationals buy out successful Israeli companies.

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The fact that most startups never become Teva or NICE or Check Point "can be seen as a failure," Dr. Golany acknowledged, referring to three homegrown Israel-based corporate giants. "But experience shows that most of the entrepreneurs who sell to multinationals become serial entrepreneurs who create more startups, which pour money into the economy.

"That's the fuel for greater innovation," Dr. Golany said.

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