TEL AVIV—Israel couldn’t believe its luck when huge natural-gas deposits were found in its waters five years ago. There was hopeful talk of cementing regional peace with pipelines to energy-hungry neighbors, and of plentiful gas fueling a new economic boom.

Instead, what happened since then has spotlighted how unprepared Israel was to deal with newfound energy riches even as it prides itself on being a modern, investor friendly economy.

Political feuding and bureaucratic infighting have delayed for years the development of the biggest gas field and now are threatening Prime Minister Benjamin Netanyahu’s fragile coalition government.

No development work started so far on the Leviathan field, the largest in the Mediterranean and estimated to hold 22 trillion cubic feet of gas—enough to supply a country like Turkey for more than a decade. Amid uncertainty about government regulations, no serious search for likely additional gas and oil fields in Israel’s waters is under way, either.

And with global oil and gas prices plummeting this year, the country increasingly faces the risk of missing much of its expected energy bonanza altogether.

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