"[A]n American cybercrimes expert said thousands of Israeli and American Web sites have been defaced by radical Muslim hackers. A broad spectrum of sites, including those belonging to small businesses, a media company and a cargo airline, have been hacked into and plastered with anti-Israeli and anti-American messages."
There are reports of anti-Israel hacks originating in Turkey, Morocco, Iran, Europe, and other places, as well as from the Palestinian territories.
Israeli hackers are engaging their cyber arms, too. One group recently hacked into to the website of the Izz al-Din al-Qassam brigades - Hamas' military wing - and uploaded the Israeli national anthem.
Apparently Hamas is even offering rewards to hackers who come up with innovative ways to strike Israeli targets. Palestinian Islamic Jihad has its own cyber-warfare brigade.
According to one research paper from the Military Review (a U.S. Army journal), the Israeli-Palestinian cyberwar dates back to 1999. Then in 2000, just after the second Intifada began:
Israeli teenage hackers created a website to jam Hezbollah and Hamas websites in Lebanon. The teenagers launched a sustained denial of service attack that effectively jammed six websites of the Hezbollah and Hamas organizations in Lebanon and of the Palestinian National Authority. This seemingly minor website attack sparked a cyberwar that quickly escalated into an international incident. Palestinian and other supporting Islamic organizations called for a cyber Holy War, also called a cyber-Jihad or e-Jihad. Soon after, hackers struck three high-profile Israeli sites belonging to the Israeli Parliament (the Knesset), the Ministry of Foreign Affairs, and an Israeli Defense Force information site. Later, hackers also hit the Israeli Prime Minster's Office, the Bank of Israel, and the Tel Aviv Stock Exchange. [More]And well, things have only gotten more sophisticated since then.