That's a very interesting question, and one that can only be imperfectly answered, since there are so many factors.
First, the baseline: it's hard to find tons of economic data on inflation-adjusted GDP per capita. Lebanon should be automatically excluded, because it suffered a civil war during the period specified, and that can help explain why its GDP per capita remained hard to count, and even harder to increase. Syria, for some reason, has no inflation-adjusted numbers, and Jordan's starts only in 1975, per the World Bank. I could use non-inflation-adjusted numbers, but that wouldn't do too much to help. Also, the PPP measure (adjusting for purchasing power) doesn't go back far enough for this.
Nevertheless, there's a clear trend of difference, and the question is why. This table below shows what the GDP per capita of inflation-adjusted measurements was for Egypt, Jordan, and Israel, from 1975 to 1990:
| Country | 1975 GDP | 1990 GDP | % Change |
|---|---|---|---|
| Israel | 17,055 | 21,141 | 24% |
| Jordan | 1,633 | 2,440 | 46.7% |
| Egypt | 789 | 1,522 | 85.5% |
Surprised? That's probably because you're looking at GDP per capita without adjusting for inflation. In that measure, the numbers look more like this, in percent change:
Israel: 436% increase from 1970.
Egypt: 226% increase from 1970.
Jordan: 214% increase from 1970.
The reasons for this are multi-faceted, but perhaps the biggest reason for the discrepancy is that Israel suffered a bout of inflation that went into hyperinflation during the 1970s and 1980s. In 1970, Israel's inflation rate was 6% or so. By 1984, inflation was rising over 373%. This type of inflation is something you usually see in developing states that are collapsing, for reference. The US, by contrast, saw 13% inflation in 1979, and the Federal Reserve promptly raised interest rates high enough to rein in inflation and sparked a mini-recession. Egypt and Jordan experienced some inflation, but nothing on the order of Israel's.
Still, as I said, you've hit on a fascinating trend. Why was the Israeli GDP per capita higher to begin with, and why did it hit hyperinflation? Some might be tempted to claim it was foreign aid, but that would be very little of the explanation. After all, real GDP per capita growth lagged behind Egyptian/Jordanian statistics from the 1970s on, which is when the US began to provide military aid in earnest to Israel. Prior to that, economic aid was not nearly sufficient to explain the divergence, and Egypt itself began receiving military aid from the US in 1979 in quite significant amounts too (plus both were allied to the Soviets).
Partially, the question is answered by governance, at least in the pre-1970 period. The Israeli economy never developed under authoritarian rule, which generally means more respect for property rights, market growth, and foreign investment. Being part of the Western bloc more and more, while the Arab states continued to move towards the Soviet bloc, opened up markets in Europe and the US, and helped Israel promote exports. Indeed, Israel's trade deficit went from 26% of its GDP to 14% between 1952 and 1966, mostly because of this increasing access to markets and ability to export.
Still, setting up these industries was not easy at all. In part it was because of economic aid, but again, that doesn't really tell the story. US aid to Israel in economic terms rarely cracked $100 million per year in the pre-1970 period (all types of aid included), and chunks of it came in the form of loans (loan forgiveness came far later, and doesn't explain the pre-1970 period, though it can help explain how Israel got out of the 1980s hyperinflation somewhat). Instead, Israel benefited from a few identifiable sources far more:
Donations from Jews living abroad, many of whom were understandably distressed at the state's poor financial situation, given it was surrounded by numerous states declaring they would destroy it. It's unclear exactly how much was given; I can't find a source, but I can say that it was likely a quite large amount. In 1948, the Israeli Prime Minister asked Golda Meir (who would later become Prime Minister herself) to fundraise for $25 million in contributions to help the war effort. From January to March 1948, she raised $50 million. In May to June 1948, she raised another $50 million.
I've read one estimate that suggests that US aid, contributions from world Jewry, debt, and German reparations totaled $18 billion from 1950-1973. Well, aid from the US totaled less than $150 million in grants during that period (the rest was loans), Israel had $4.2 billion in foreign debt by 1972 (according to a CIA analysis), and Germany paid roughly $745 million in reparations. So much of the rest was probably donations (though the debt doesn't reflect the full amount in bonds, which could be sold domestically, and which were obviously being serviced).
Debt has been mentioned, but German reparations are worth a mention. Those were not blood money. I can't stress enough that Israel did not simply say that they were "square" because Germany paid money to Israel. Israel asked for reparations based on estimates of the cost of settling Jews who fled Germany and the Nazis in Israel. Israel estimated that there were roughly 500,000 who fled to Israel, often forced to leave much of their property behind, and that $3,000 per person would cover the costs. Israel then negotiated, and reduced the claim from $1.5 billion to $1 billion. Then it was reduced further, despite huge controversy in Israel, and then the final agreement came out, where Israel would spend 30% of the reparations (roughly $845 million, all told, with about $100 million going to adjudicate claims of individuals who lost property) on oil from the UK, and the rest on purchases from Germany. Yes, Israel got reparations from Germany that it then was required to spend on German goods. Yes, this was controversial.
So Israel got significant inflows of cash, which helped somewhat considering it was in a state of crisis following the 1948 war. It's worth remembering that Israel survived a war in 1948 wherein roughly 700,000 Palestinians left or were expelled into the Middle Eastern states around Israel, and roughly 700,000 Jews from Middle Eastern states around Israel left or were expelled into Israel. However, they didn't occur at the same time, nor were they equally transferable in skills, living situations, etc. Jews coming from abroad had to be taught Hebrew, housed, and live in a war-torn country. For at least ten years, Israel had refugee camps reminiscent of those that existed in surrounding Arab states housing Palestinians. However, the donations, reparations, and debt issuances all helped Israel find its feet, and by 1967 it was on its way to a generally good economic stance because of the factors I've already mentioned, its more liberal policies, its stronger affiliation with the West, etc. However, it was dogged by a constant problem, namely that it had to spend huge chunks of its GDP on its military to ensure a state of constant readiness, being surrounded by much larger enemy states, as it were. In 1966, Israel was spending 11.7% of its GDP on the military, despite not having fought in a major/sustained war since 1956. And in 1966, tensions were rising.
Then war began in 1967, and Israel's spending on the military jumped accordingly. A tiny state going to war with much larger states finds much of its economic strength eaten up in the process. When Israel called up reserves in 1967 following the Egyptian blockade of the Straits of Tiran, there was a period during which over 10% of the Israeli male population was waiting for a war that didn't come. And when a population leaves its jobs, factories, etc., to sit on a frontline, that's already economically devastating. Israel's military spending was at 24.1% of GDP by 1972, because of the general costs of controlling the West Bank, Gaza, the Sinai, the Golan Heights, and still maintaining the ability to defend itself from the larger states around it.
To put that in perspective, Israel was spending more on its military as a % of all things produced in the country than the US federal government spends on everything combined today.
Continued in a reply to my own comment.