Israeli stocks have plummeted as Israel takes on two fronts and the fighting escalates. The New Israeli Shekel was heading for its biggest two-day decline in eight years. The currency fell to 4.4960 from 4.4452 against the US dollar, declining just under 3 percent.

"We think the market will be volatile today based on different views on the likelihood of best-case and worst-case scenarios. Events on the ground in the coming days will likely drive these views and the market," Clal Finance Batucha told clients in its morning note.

The TA-25 bounced off an early low of 743.07 but remained sharply lower in midday trading, down 27 points, or 3.4%, at 755.46. The skid comes on the heels of Wednesday's 4.2% slide. The TA-100 index was off 29 points, or 3.6%, at 767.49.

"Although price levels are attractive, we would not recommend entering the market at this time, until it becomes clear whether this will be a relatively short or extended escalation, " Excellence Nessuah told its clients. "We believe the most likely scenario will be a relatively short but massive Israeli retaliation in Lebanon, with the objective of establishing deterrence."