If Iran can make Israel exist in a state of constant military readiness (at least, as "ready" as any IOF school shooter can be) it will be damaging to their morale and after a while they won't even be particularly "ready" because they've been on high alert for months. Keeping the retaliation hanging over Israel's head also puts pressure on the settlers with constant fear of the Iranian response. The longer they draw it out, the worse it is for Israel.
edit: check out this lecture @Al_Sham posted https://hexbear.net/comment/5343509
One of the points that stuck with me is that Israel has to pay reservists the equivalent of their normal salary at their jobs when they're on active duty. Being forced to have a huge number of reservists on active duty is draining their military budget badly.
Economic collapse alone might not. Beyond the state of Israel, if there were a unified response by all the resistance factions the US/NATO would certainly come to Israel's defense and a greater regional war would be the result. The resistance must keep their responses below the threshold of western intervention and slowly bleed the entity dry, damaging their economy is just one part of that. You can't have a nation if the people who run your government (the actual bureaucrats) fuck off back to Europe and the nations you rely on for necessary imports refuse to do business with you. The US can't keep the entire nation afloat if the nation stops being functional.
Regarding caasualties, Israel absolutely can't sustain losses like this for another year. Their hospitals are full of casualties, something like one in four casualties are amputees. Much like Ukraine, the combination of people fleeing the conflict to Europe and the US and the massive toll on their active duty military sets them up for extremely hard times.
Check out this lecture Al_Sham posted, she goes into detail about this strategy: https://hexbear.net/comment/5343509