Have you read Startup Nation?(1) It talks about why Israel is the country with the most startups per capita in the world. Israel also has the more companies on NASDAQ than all of Europe combined. One of the main reasons the authors cite is Israeli teenagers all go to the army. The entire Israeli military culture is based on individual resourcefulness and improvisation. They get experience in leadership and technical skills that almost no American teenager gets at their age. Further, instead of being saddled with hundreds of thousands of dollars in debt for this training they come away with no debt.
tl;dr I think the Israeli army if anything is a massive contribution to the success of their innovation economy.
(1) http://www.amazon.com/Start-up-Nation-Israels-Economic-Mirac...