By JOSHUA MITNICK

The plan marks a sea change in Israel's decades-old outlook toward the main military threats it faces. Ever since it fought a multiple-front offensive by Arab armies in its 1948 war for independence, Israel's strategic planners and public have been dogged by fears of being overrun by enemy armies, with their backs to the sea.

Formidable militaries in Egypt and Syria, which fought together against Israel three times in a quarter century, are now mired in domestic unrest. The war against President Bashar al-Assad has worn down the Syrian army; Egypt's military is busy trying to stabilize the country amid a political crisis.

Israeli Defense Minister Moshe Yaalon said in public remarks that the army plans to be less dependent on heavy armaments. "In another few years we will see a different" Israel Defense Forces, he said. "Wars of military versus military—in the format we last met 40 years ago, in the Yom Kippur War—are becoming less and less relevant."

Prime Minister Benjamin Netanyahu has often highlighted Israeli concerns about the rise of instability in the region since 2011. The new direction is significant because it underlines a new belief among Israeli military planners that the turmoil wreaked by the Arab Spring has eased some of the major risks to Israeli national security.

The army plans to cut thousands of career officers, shut ground-force units, eliminate air-force squadrons, and decommission naval ships over a period of five years, said an Israeli army spokesman who declined to provide more details.

The changes are part of a plan which will come up for parliamentary government approval in the coming months to cut about $830 million from the military budget. Israel's government has had to deal with an unexpectedly large budget deficit in 2013, because of overspending and lower-than-projected tax revenue. The military has come under pressure from the Israeli treasury and the public, which has come to view it as bloated, to chip in with cuts after years of spending increases.

Defense chiefs and military analysts said that the overhaul would focus on countering threats from guerrilla armies with rockets embedded in civilian areas, such as Hezbollah and Hamas—conflicts known as asymmetric warfare.

Instability in Egypt and Syria has prompted Israel to bulk up forces against cross-border terrorist attacks from small militias which have filled the power vacuum along the Sinai Desert and Golan Heights border regions.

Israel will also focus on cyberwarfare and confronting its arch-nemesis Iran, which it accuses of seeking to build a nuclear weapon.

Mr. Yaalon said future battles would be decided based on the IDF's technological superiority.

The military reform is the most ambitious overhaul plan since the 1990s, when then chief of staff Ehud Barak proposed a makeover that would make IDF a "small and smart army.'' The plan was never fully realized amid the exigencies of the Palestinian uprising.

Israel's 1979 peace treaty with Egypt led to a military downsizing that drastically reduced its defense expenditures from more than 25% of GDP to under 10%.

The working assumption of military planners over the past 30 years was that war with Egypt was highly unlikely for at least two years going forward, said Giora Eiland, a former major general and national security adviser, in an interview with Israel Radio.

The current overhaul adds another three years to the comfort zone for military planners. "To say that there isn't the possibility of a war with Egypt within the next five years is a pretty bold decision,'' he said.

The Arab Spring has accelerated a shift under way for decades in the Middle East, analysts said. Israel hasn't fought an all-out conventional war against a rival military since 1973. At the same time, the U.S.'s two wars in Iraq eliminated Baghdad's ability to threaten invasion from the east through Jordan.

"The announced changes are serious. A lot of the cuts will not be restored easily,'' said Gerald Steinberg, a professor of political science at Bar Ilan University. "The strategic situation has changed to a more significant degree than it was thought to have changed in the 90s. It's hard to imagine the type of the wars that were once fought.''

Write to Joshua Mitnick at Joshua.Mitnick@wsj.com