tel aviv rocket
Boys carry their surf boards as their lesson is cancelled following a mid-air explosion as a rocket is intercepted by the Iron Dome defence system over Tel AvivReuters

With each day of fighting in Gaza the Israeli economy is paying an increasingly steep price.

In no sector is the impact of the increasingly deadly fighting more stark than in the tourism industry. Confident predictions of a record breaking year have suddenly evaporated, to be replaced by the current reality of vacant hotel rooms and thinning beach crowds during the peak summer season.

Some 3.5 million visitors headed for Israel in 2013, spending around $12bn (£7bn, €8.9bn) along the way. With 1.9million visitors recorded in the first six months of the year, industry watchers were confident of a record year.

With casualties on both sides increasing and no sign of a long-term ceasefire in sight, Israel's tourism industry is bracing for a period of pain.

"Most hotels and airlines say the year is lost. The worst possible time for a war in Israel from the vantage point of tourism is the summer," Mark Feldman, chief executive of a Jerusalem travel agency, told Reuters.

"Every day the war continues, we lose a week of future bookings," he added.

The Israel Hotel Association (IHA) has estimated $500 million in lost tourism revenue - including $100 million for hotels - in the third quarter because of the fighting. That translates into a 35% drop, or 280,000 fewer visitors than expected.

"Hotels in Tel Aviv and Jerusalem are supposed to be 80% full right now, but today, the occupancy rate is about 40%," said Eli Gonen, IHA president, as quoted by Haaretz newspaper.

Yet the Tourism Ministry said the industry had recovered from the previous Gaza offensive in 2012, and would do so again.

"Based on previous experience [we are] optimistic about the ability of the industry to bounce back to routine," it said in an emailed statement, as quoted by Reuters.