Israel have National Service so pretty much every working there is ex-Army.

This is a wild exaggeration - very few people are a good fit for serving in a military, and while the Israeli army ignores that, and drafts many it shouldn't (resulting in high suicide rates on one hand, and alleged war crimes on the other), it still only drafts ~69% of AMAB and 55% AFAB.

It does gives free technical education and experience for some recruits (not necessarily the top, and that experience isn't always teh best), but of course that affects tech employment - you'd see higher rates of service across tech employees, as that service gave them a jump start on their tech education.

That said, even if the Israeli military decides to draft a person, that person can stand up and refuse. It ain't "free" (may result in imprisonment,) but it's a choice that even if too few make, it is one, and making it is a strong signal about what kind of person they are.

These people are from an intelligence agency, not just army.

Wouldn’t it be expected that those most capable with technology and software be routed to the intelligence agency, rather than the front lines or something?

Not if you know how militaries and intelligence agencies are run.

They're referring to this: https://en.wikipedia.org/wiki/Unit_8200

You can scroll down to see the companies founded by alumni.

The Meta CISO is ex-8200.

The unit gets to pick the most talented before the rest of the army. Most israeli startups are founded by unit alumni.

I'm not sure I understand what reverse merger means, or what OP is implying