The New York Times describes the Israeli strategy in the recent war in Gaza as follows:

The Israeli theory of what it tried to do here is summed up in a Hebrew phrase heard across Israel and throughout the military in the past weeks: “baal habayit hishtageya,” or “the boss has lost it.” It evokes the image of a madman who cannot be controlled.

“This phrase means that if our civilians are attacked by you, we are not going to respond in proportion but will use all means we have to cause you such damage that you will think twice in the future,” said Giora Eiland, a former national security adviser.

It is a calculated rage. The phrase comes from business and refers to a decision by a shop owner to cut prices so drastically that he appears crazy to the consumer even though he knows he has actually made a shrewd business decision.

I think the word “consumer” should be replaced by the word “entrant” for this passage to make complete sense – consumers like lower prices, entrants do not.  Then, the Israeli strategy becomes the classic story about predation:  When an entrant dares to enter a market, the incumbent may want to prove he is “tough”, cut his price drastically and drive the entrant out of the market.  This will also help the entrant “to think twice in the future” as they say above and deter future entry.  This assumes the entrant has nothing to prove.  But Hamas also want to prove its tough.  If it backs off now, then Israel will learn that Hamas is soft and will surely push the advantage in a future war.  So, Hamas has the same incentives as Israel and will not back down.  That is, the possibility of future war and the reputation each player wants in that war makes both players tougher.  So the war can be very very terrible.  For a preliminary model along these lines see my paper “Reputation and Conflict” with Tomas Sjöström.  For the Prime Minister this is a ” ‘el harb el majnouna,’ the mad or crazy war”.  And it’s all unfortunately quite rational:

Shlomo Brom, a researcher at the Institute for National Security Studies at Tel Aviv University and a retired brigadier general, said it was wrong to consider Hamas a group of irrational fanatics.

“I have always said that Hamas is a very rational political movement,” he said. “When they use suicide bombings, for example, it is done very consciously, based on calculations of the effectiveness of these means. You see, both sides understand the value of calculated madness. That is one reason I don’t see an early end to this ongoing war.”

I say unfortunately because I hope (irrationally?!) that rational behavior can be taught and irrationality eliminated.  But if crazy behavior is rational, what are we to do?

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