Israel reformed its health care system in 1995. In contrast to many other developed nations, it has since experienced relatively low rates of growth in health spending, even as health outcomes have continued to improve. This paper describes characteristics of the Israeli system that have helped control rising costs. We describe how the national government exerts direct operational control over a large proportion of total health care expenditures (39.1 percent in 2007) through a range of mechanisms, including caps on hospital revenue and national contracts with salaried physicians. The Ministry of Finance has been able to persuade the national government to agree to relatively small increases in the health care budget because the system has performed well, with a very high level of public satisfaction. It is unclear whether this success in health expenditure control can be sustained because of growing signs of strain within the system, the rapid increase in nongovernment financing for health care services, and the growing prosperity of Israeli society.