In the Israel Defense Forces, Diskin served as deputy company commander of Sayeret Shaked (the command Sayeret of the Israeli Southern Command). In 1978, he was recruited to the Shabak and served as area coordinator for the Nablus district. During the 1982 Lebanon War, Diskin operated in Beirut and Sidon.
In 1984, he became the coordinator of Nablus District, and by 1989, also the Jenin and Tulkarm districts. In 1990, he was appointed Department head in the Shabak's Arab Affairs Branch. In 1994, he became the head of the Arab Affairs Branch.
From 1997, Diskin was appointed as the commander of the Jerusalem District. From 2000 to 2003, he was the Shabak's Deputy Director. From 2003, he was on a study sabbatical, during which he became special advisor to Mossad Director, Meir Dagan. On May 15, 2005, he replaced Avi Dichter as Shabak Director. On May 15, 2011, Diskin was replaced in this position by his former deputy, Yoram Cohen.