George Osborne has said the UK has much to learn from Israel's start-up business culture after returning from a visit to launch the British embassy's UK-Israel High-Tech Hub.

The Chancellor said: "There is a natural Israeli ingenuity and innovation which Israeli governments of different political persuasions have been very smart in fostering. There are things we in Britain can learn from that."

Government should support private-sector investment in start-ups, he said. The new Tech City project in east London was an attempt to encourage just the sort of high-tech revolution witnessed in Israel over the past decade.

Mr Osborne's visit to Israel was delayed by the Eurozone crisis talks. But he still had time to meet the Governor of the Bank of Israel, Stanley Fischer; Israel's Finance Minister, Yuval Steinitz; and Palestinian Authority Prime Minister Salaam Fayyad.

Mr Osborne said the principle behind the high-tech hub was to link British capital to Israeli start-ups, and Israeli capital to British start-ups. He said the UK's relationship with Israel was too often framed around security issues and he wanted to develop the economic relationship further.

He added: "Friends of Israel, like me, have always been familiar with the story of the desert that bloomed and the first incarnation of the Israeli economic success story.

"I think what is less familiar is the most recent incarnation of that story, this incredible spawning of high-tech and start-up businesses."

The Chancellor said he was "struck by" the fact that "Israel did not get into the same debts and leverage that the UK got into. That has helped a lot."

But he said the improvement of the security situation had also contributed to economic success. "The relative security has helped growth both in Israel and the Palestinian territories. Add to that Israeli and Palestinian ingenuity and entrepreneurship, which doesn't need much excuse to flourish, and I think you've got real economic potential there.