The Economist Intelligence Unit's democracy index ranks Israel 37th out of 167 countries, putting it among the 53 countries considered flawed democracies, along with states such as India, Hungary, Estonia and Brazil, but well ahead of other countries in the Middle East, where it is the only one considered to be democratic. Israel's position owes much to its high scores for the electoral process and political participation. The electoral system is open to new parties and the country has one of the lowest voting thresholds in the world, with just 2% of the national vote required to gain parliamentary representation. This has seen many parties come and go but has also resulted in a rather fragmented parliament and reliance on unstable coalitions in order to govern —which has at times hindered government effectiveness (holding down the score for the functioning of government) and has led to frequent elections.

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Political engagement is high

Political participation—both at a grassroots level over single issues and in terms of voter turnout at elections—is fairly high, and Israel has its second-highest score in this category. However, the divisive nature of the electoral system and the polarising nature of many of the key issues facing the country hold down the score for political culture. Israel's main weakness is in civil liberties; although there is vigorous public debate, a vocal press and free expression, Israel has at times used torture against Palestinian prisoners, and the raid on the Gaza aid flotilla caused an international outcry. Moreover, a military censor can and does occasionally block the publication of information about sensitive security events. Although the Basic Laws (that serve as a constitution) allow for freedom of faith, in reality, the orthodox bodies of each of the major faiths in Israel oversee family law, which is particularly problematic for those of a mixed-faith background or those adhering to non-orthodox streams of Judaism.

Speedy rebound from global downturn helps to preserve social calm

Israel navigated the global recession and financial crisis with relative ease. Although unemployment rose initially, it has since fallen and is now close to its historical low. Public finances are in good shape, helped by a strong recovery in tax revenue and the absence of any significant balance-sheet damage to the domestic banking system. As a result, the government will not be required to implement any major cutbacks in public spending—at least on a scale of the reductions that have helped to fuel popular discontent and mass protests in some other democracies. Nevertheless, if the government is not seen to be dealing with pressing economic issues promptly and fairly, coalition members may leave the government, weakening its majority. In addition, the stalling of the peace process poses a threat to coalition harmony. There is also a risk, given the historical precedent, that Palestinian frustration with the lack of movement in the peace negotiations could spill over into renewed violence (ie a new infitada).

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Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded from www.eiu.com/DemocracyIndex2010.

Note on methodology

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy that reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. The five categories are inter-related and form a coherent conceptual whole. Each category has a rating on a 0 to 10 scale, and the overall index of democracy is the simple average of the five category indices.

The category indices are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regimes:

• full democracies—scores of 8 to 10;
• flawed democracies—score of 6 to 7.9;
• hybrid regimes—scores of 4 to 5.9;
• authoritarian regimes—scores below 4.