That's the good news.
On the other side of the equation, Prime Minister Ehud Olmert is still under pressure to resign for his poor conduct of the war, home-front defenses are suffering from neglect, Hezbollah is re-arming with bigger and better rockets and there have been no signs of life from the two Israeli soldiers whose abduction on July 12, 2006, sparked the 34-day conflict.
One year later, these questions remain: How has Israel's performance in the war affected its standing in a hostile environment? Is U.N. Security Council Resolution 1701, which brought the fighting to an end, proving effective? What are the chances of a prisoner exchange? What has been done to bring the Israel Defense Forces up to speed and to bolster home defenses? On the political front, can Olmert survive as prime minister?
In the fighting, 119 soldiers and 44 civilians were killed. Israeli forces proved unable to stop daily Hezbollah rocket barrages on civilian population centers. National leadership was indecisive. Ground troops did not perform well. The captured soldiers, Eldad Regev and Ehud Goldwasser, were not freed.
Most experts maintain that on balance, the war hurt Israel's deterrent capacity. The problem is particularly acute on the Syrian front, where President Bashar Assad has been building up his arsenal of ground-to-ground, anti-aircraft and anti-tank missiles.
The Israeli concern is that Assad, given his perception of the Israeli performance in Lebanon, may miscalculate his military strength relative to Israel's and start hostilities. In recent months, the Israeli government has sent Assad two clear messages: Israel has no intention of attacking Syria, and if war does break out, Syria would be far more vulnerable to Israeli firepower than Hezbollah because of its state apparatus and infrastructure.
Israeli intelligence believes the messages were received, but no one on the Israeli side is discounting the possibility of another war in the north this summer.
In the immediate aftermath of the war, Olmert presented U.N. Resolution 1701 as a major strategic gain. It placed a "robust" U.N. force of more than 13,000 troops in the border area previously occupied by Hezbollah, creating an effective buffer between Israel and the Shiite militiamen.
In the year since the war, Hezbollah has not fired a single shot across the border. An isolated rocket attack on Kiryat Shemona in mid-June was attributed to a radical Palestinian faction. Hezbollah fortifications near the border have been destroyed, and arms and ammunition found there have been confiscated.
Olmert says the days are gone when Hezbollah forces near the border, with more than 10,000 Katyusha rockets trained on civilian, military and strategic targets, could hold Israel captive.
A late June report released by U.N. Secretary General Ban Ki-moon, however, paints a more somber picture. According to Ban, Hezbollah continues to receive vast quantities of arms from Syria and Iran in blatant violation of 1701.
Most of the weaponry comes overland across the Syria-Lebanon border and includes rockets with a range of more than 150 miles. Hezbollah, according to the report, apparently is building new positions outside the U.N. zone from which it would be able to launch rocket attacks against Israel. Israel has complained several times about the porous nature of the Syria-Lebanon border, but no one seems to be doing anything about it.
Israel also is concerned about the possible military coordination among Iran, Syria and Hezbollah. For example, if Assad were to launch hostilities later in the summer, Israeli intelligence believes Hezbollah would join in, and Iran would provide more weapons and logistical support.
Ban's report on the fate of the two Israeli captives is equally downbeat. He is sharply critical of Hezbollah for not providing any sign of life from the two soldiers and says concerns about their fate are growing.
Israeli officials believe that during the abduction, one of the men may have been badly wounded. Contacts between Israel and Hezbollah through a German intermediary are continuing, but nothing has been revealed about the soldiers' conditions. Bargaining over a prisoner exchange apparently has yet to get off the ground.
The most dramatic change since the war has occurred among Israel's military forces. Following the criticism of its performance, the army set up more than 40 internal panels to analyze shortcomings and recommend improvements.
As public protest swelled, Chief of Staff Dan Halutz, an air force man, resigned and was replaced by Gabi Ashkenazi, a seasoned infantry general. Ashkenazi introduced key changes in doctrine and training. The notion that modern wars could be won by firepower alone was replaced with the classic IDF doctrine of firepower and ground force maneuvers combined.
Training of ground forces and reserves was increased significantly in light of the modified doctrine. In late May, the IDF carried out joint exercises on a scale not seen in years.
There also has been new thinking on home-front defenses. Dan Meridor, a former minister for strategic affairs, recently produced a detailed report, "The Home Front as Battlefield," in which he argues that in modern rocket warfare, civilians are as likely to find themselves on the front line as soldiers, and that it is incumbent on the government to prepare them psychologically and provide the funding for their protection.
Gaps in levels of security for rich and poor could harm national resilience, Meridor said. But there has been little government action on building new shelters, making old ones more habitable and providing funds for the construction of reinforced rooms in private homes and apartments.
The big political question in the wake of the war is whether Olmert can maintain his hold on power much longer. The Winograd Commission, the main panel investigating the overall conduct of the war, issued a scathing interim report in April that was particularly critical of the prime minister's performance.
By moving quickly to close ranks in his Kadima Party, Olmert managed to survive. Pundits say, however, that if the committee is as or more scathing in its final report expected in August, the prime minister may have to go.The Labor Party under the new defense minister, Ehud Barak, is threatening to bring down the coalition government -- of which Labor is a key element -- if Olmert stays.
For Israel, the Second Lebanon War undoubtedly was a traumatic experience. But paradoxically, it may have served as a timely wake-up call for both the military and the politicians. As a result, regional perceptions notwithstanding, the country may have emerged stronger.
Leslie Susser is the diplomatic correspondent for the Jerusalem Report.