The ratings agency cited Israel's "prosperous and resilient economy, strong institutions, ongoing fiscal consolidation, and robust external performance."
S&P also praised the country's fiscal leadership for "careful macroeconomic management" and noted anticipated revenues from recently discovered natural gas deposits offshore.
However, S&P also noted the "significant geopolitical risks" faced by Israel and the country's substantial public-sector debt.
Prime Minister Benjamin Netanyahu commented on the credit upgrade, saying it was the result of Israel's "responsible and serious" economic policy.
In a statement issued by the Prime Minister's Office, Netanyahu noted that the government is committed to its economic policy, stressing that any fiscal recommendations made by the socioeconomic committee will be applied whilst maintaining a healthy and stable economy.
Finance Minister Yuval Steinitz noted with satisfaction that "this is an honorable accomplishment for the Israeli economy and its successful handling of the global crisis, which has been threatening Western economies for about three years."
According to Steinitz, the accomplishment is particularly impressive in light of the debt crisis and high unemployment rate which have affected the credit rating of many countries worldwide.
Bank of Israel Governor Stanley Fischer welcomed the decision as well, saying that he "praised the government and Treasury for their intention to pursue a responsible budgetary policy."
Israel's economy has weathered the global economic downturn with relative success.
The agency left local currency ratings unchanged at AA-/A-1+.
On August 5, S&P made international waves by stripping the US of its AAA credit rating.
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