* Good programming talent.
* Access to capital. (Yossi Vardi alone funds a lot of startups.)
* Great English skills.
And some downsides:
* Young tech people can be whisked away by the military in a heartbeat. (And the draft can go up to 40 years old I hear.)
* Not as cheap as it used to be. Talented people make only a bit less than they would in the US.
* The culture tends to be more argumentative than the US. You can find yourself spending too much time arguing about minor details and not building product.
* Design talent can be atrocious. They aren't as focused on aesthetics as Western Europe or the US.
* Ethnicity based immigration policies.
* Flying there is a nightmare for non-Jews (sorry to put it bluntly, but it's true, I know from first-hand experience). And if you hire a young male Arab in the US, they will probably refuse to go back after visiting the airport once.
another plus point - awesome beaches
the reason that many tech events in Israel are in English, is not because of it's serving as a "lingua-franca" of our diverse population, but because almost always we have foreign guests or foreign speakers. It's enough to have one high-profile foreigner in the audience, so the entire event will be in English. The small meetups with only Israeli attendants are held in Hebrew. Even if the lectures or talk are in Hebrew, slides most likely will be in English. Also I would not call Jewish immigrants from North America - "expats". Thought there is a big Anglo-Saxon Jewish immigrant community (US,Canada,UK,SA,Australia,NZ).
I'm from Israel (temporary relocated to Europe), but thinking about moving to SF Bay Area for number of reasons. I contacted by our local VCs once in a while, but still it's not the same scale as in the Valley. Also my product based on Erlang/OTP with virtually no experienced people in Israel in Erlang or functional languages at all. The last reason, I work in Semiconductors industry and it's only logical to move to Silicon Valley ;)
Regarding moving to one of European countries: I would be careful, if you planning to hire people there. Most of the countries has strict labor codes, limiting number of hours employees can work and large vacations. So it might be not a good fit for startup. One of the reasons, Intel Larabee project is failed, because large chunk of the project was assigned to Intel Germany ;) VC frequently use word "hungry". Like: "I will fund him, if he is hungry enough". I think for your startup you need to choose a place were people are hungry. Hungry for success, hungry for money, etc. Unfortunately, Continental Europe is not such a place ;)
I think the hunger for risk & success is a good point, and perhaps the main characteristic of Tel Aviv, from business to art to nightlife. Though it takes a certain kind of person, especially if you grew up in much safer Europe/North America.
Good luck with your startup! Will be happy to buy you a beer if you pass by NYC, en route to SF :)
Tel Aviv didn't really have much terrorist bombing recently - I wouldn't be surprised if more people (even per-capita) died in NYC, London or Madrid in the past 10 years than in Tel Aviv, and you'd never consider terrorism to be a reason not to move to either of these cities.
I tried searching for this question and turned up a lot of alarmed newspaper articles about a rising tide of non-Jewish immigration, and even government promises to do something about this.
Either way, it's tough to get a work visa, about as difficult as the US or Europe. If I were doing it, I'd go on a tourist visa. All in all Tel Aviv is a great place to hang for a while, but if you're looking to relocate somewhere for a year or so I'd look for a cheaper and easier places in South America or Asia. Even Vancouver might be cheaper. (Or if you're an EU member there's Berlin and possibly some Easter Europe cities?)
And Montreal is even cheaper (about 2/3 the cost of living).
If I were in the OP's position, I believe I'd incorporate (if I really need to at all) where I have citizenship, then work on the product wherever I choose.
If you're talking an office with employees etc, that's a different story, but if it's a couple ppl working from an apt or cafe, perhaps with other staff telecommuting from where they live, I can't imagine this would a problem anywhere.