For most of their existence their much larger Arab neighbors (who had the backing of a superpower) had the explicit and oft-stated goal of destroying Israel. Those weren't idle threats: several wars were fought under that banner, one of which was almost successful.
While they currently have a somewhat more secure position, due to peace treaties. They remain unpopular, and a governmental change or revolution could easily put them under intense threat again.
The very first day of the state of Israel, May 14th 1948, Israel was invaded[0] by six Arab nations (Egypt, Iraq, Transjordan, Lebanon, Saudi Arabia, and Syria.) Plus, volunteer units from Sudan, the Muslim Brotherhood, Pakistan, and the Holy War Army.
It's remarkable that the nascent state of Israel survived.
And again in 1967[1], Israel was attacked by 13 nations. Despite being outnumbered 264k to 547k, they not only won but gained territory, including Jerusalem, Sinai, and the Golan Heights.
And again in 1973, Israel was invaded by several nations[2], outnumbered by over 3 to 1 in total troop deployment.
This combined with the fact that Israel is the world's only Jewish state, founded by people who survived the Holocaust or had witnessed it first-hand, founding the state of Israel just 3 years after the end of World War II. It's remarkable for a people who make up a tiny portion of the world's population. It's remarkable that Jews exist today. It's remarkable that Israel exists today.
So yes, underdogs indeed.
[0}: https://en.wikipedia.org/wiki/1948_Arab%E2%80%93Israeli_War