Editor's note: Guy Rolnik is editor-in-chief of TheMarker.com, an Israeli Web site that focuses on high tech and business news. TheStreet.com is an investor in the site, along with Ha'aretz.

TEL AVIV, Israel --

Polaris Venture Capital

managing partner Chemi Peres, son of the former Prime Minister

Shimon Peres

, told the daily

Ha'aretz

yesterday that the group intends to launch a fourth venture capital fund, with half a billion dollars under management.

It is a well-known fact that 90% of the money invested in venture capital in Israel comes from foreign investors, mainly from the United States.

It isn't clear when

Ha'aretz

interviewed Peres. It was probably a few days ago. The only sure thing is that Peres will have to rethink, or reassess, all of his plans in Israel, particularly in the Israeli venture capital industry.

Relations between Israelis and Palestinians have turned a sharp corner. A lot of things had come to be practically taken for granted in the last couple of years. This can no longer be the case.

Over the last couple of years, we've become used to viewing the trends in Israel's New Economy and venture capital industry as mainly deriving from events on the

Nasdaq

, a technology exchange situated thousands of miles away from Israel. Now it looks like Israeli's New Economy is about to suddenly connect with the reality closer to home. In fact,

at

home.

Yes, it's happened fast. Within less than a week we find ourselves in a time warp. We seem to have gone back seven years, before the Oslo agreements. Or even to have returned 10 years in time, to the Gulf War. Some feel that the fighting within Israeli territory, not the West Bank or Gaza Strip, are a reversion to an even earlier point in history.

Since the signing of the Oslo agreements seven years ago, the Israeli marketplace has strode toward globalization. Barring the wave of violence after the opening of the Hasmonean Tunnel in the Old City of Jerusalem in early 1997, for seven years the direction has been almost consistently clear. The only question mark was the speed of the process.

TheStreet Recommends

Israeli high tech epitomized the new economic era in Israel. The vast amounts of foreign capital streaming to technology companies, big and small alike, created the feeling that Israel had become a full-fledged member of the West. High tech flourished, foreign investment flowed, the

Bank of Israel

and Finance Ministry managed to conquer inflation, all combining to draw a new, unfamiliar picture of an Israel looking more and more like one of the advanced countries. At the

International Money Fund

conference just two weeks ago, bringing Israel into the distinguished

OECD

organization of the most developed nations in the world was discussed.

But now we've gone back in time. Suddenly, one wonders whether foreign delegations will still arrive, and what will the value of setting up shop here be as opposed to just going directly to the U.S. This week's cover story by

The Economist

hardly arouses ardor for the Israeli alternative among decision-makers. "The Road to War?" it asks, over the picture of a masked Arab youth brandishing a slingshot, surrounded by pillars of fire and smoke.

Several international conferences are scheduled to take place in Israel over the coming weeks, such as

Telecom 2000

, a high-tech conference hosted by the Israeli investment house

Tamir-Fishman

. They are symbolic conferences and supposed to be attended by hundreds of leading executives belonging to the global high-tech and telecommunications industries. Suddenly their realization, even though the conferences are to take place in Tel Aviv, cannot be taken for granted any more.

The crash of Internet stocks half a year ago, and the beating technology and computer stocks have suffered in the last fortnight, have left the high-tech world chilled and racked by doubts. Nobody denies the existence of a New Economy anymore, but many question its power and mainly the optimistic predictions that feed the enormous valuations it has created and does create.

The argument over the nature of the New Economy is evident daily in the volatility of the Nasdaq Composite index, whence it bounces straight to the Israeli high-tech, venture capital and start-up industries, which employ thousands of people and generate 3% of Israel's GDP.

But while the argument rages over the visions of the New Economy, the vision of a New Middle East is dying right in front of our eyes. The New Middle East, a favorite phrase of Shimon Peres, is looking more unrealistic than ever these days.

The former prime minister granted an interview to Israel television before

Yom Kippur

, the Day of Atonement, commenced. Watching his somber anger, one had to wonder whether the New Economy is turning a corner, and whether his son, Chemi Peres of Polaris, will really manage to raise a half-billion dollars for a new venture capital fund designed to invest in Israel.