The governor of the Bank of Israel, Stanley Fischer, has described the state of Israel's financial institutions, including its banks, as "so far, solid and well capitalised".

Speaking at an Oxford conference on Sunday, Dr Fischer, now in his third year as head of Israel's national bank, said that Israel was in a "very fortunate position," compared with many other industrialised nations, including the UK and America.

It was bolstered by a successful private sector and by a hi-tech sector which spent a bigger percentage of the national budget on research and development than its competitors in any other country.

As the economic crisis hit, Israel had been emerging from five years of growth at an annual rate of over five per cent. Despite the economic storm clouds, growth was expected to continue over the next five years, albeit at around two per cent.

Most important, he said, was the "unadventurous" nature of Israeli mortgage lenders. "There are no mortgages of 110 per cent like there are in the US," said Dr Fischer.

Star of the show was the Israeli shekel, which - "although many Israelis are reluctant to acknowledge this" - has been appreciating in the money markets. This had resulted in Israelis investing at home rather than turning their money into dollars and sending it abroad.

But Dr Fischer noted that Israel, as a trading nation with an open market, was not immune to the recession. Long-term challenges included poverty "which has been rising over recent years," falling standards of education, especially in high schools," and unemployment.

"Unless we improve educational standards we are going to have a hard time maintaining our innovative edge which our industries have had since the 1980s," he said.

Pointing out that Israel has one of the largest defence budgets in the world, the banker looked forward to a peace dividend, which he forecast would be a source of "tremendous growth" for the future.

The "Israel at 60" conference, sponsored by the Anglo-Israel Association, the Rothschild Foundation, the Lewis Family Charitable Trust, the Porter Foundation and the Rabin Foundation, also featured debates on the nuclear threat posed by Iran and the future of Israeli society.

Speakers included Israel's Education Minister Yael Tamir, Shai Feldman, of Brandeis University, Ephraim Kam, deputy director of Israel's National Security Studies Institute and Asher Susser, former director of Tel Aviv's Moshe Dayan Centre for Middle East Studies.