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Originally published March 20, 2010 at 5:04 PM | Page modified March 20, 2010 at 8:12 PM

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U.S. cut in aid unlikely club against Israel

The diplomatic crisis between the United States and Israel sent a tremor through their alliance, but one key part of the bond seems untouchable: the roughly $3 billion a year in U.S. military aid.

The Associated Press

JERUSALEM — The diplomatic crisis between the United States and Israel sent a tremor through their alliance, but one key part of the bond seems untouchable: the roughly $3 billion a year in U.S. military aid.

Israel's harsher critics often call for aid cuts to exert leverage. Yet amid the recent uproar over plans to build 1,600 new homes for a Jewish neighborhood in a disputed part of Jerusalem, there has been no serious talk of using aid as a club.

One reason may be the potential backlash from Israel's supporters in the U.S. Another is that most of that money cycles back into the U.S. economy.

Israel is the biggest recipient of U.S. aid after Afghanistan. But unlike most other countries, Israel's aid is earmarked for military spending. Under an agreement between the two allies, at least three-quarters of the aid must be spent with U.S. companies.

This means the "close, unshakable bond," as Secretary of State Hillary Rodham Clinton described it, is also a mutually beneficial one: Israel gets the latest U.S. military technology, and U.S. defense contractors — Lockheed Martin, Raytheon, Boeing and others — get a steady stream of income.

The U.S. stepped up funding to Israel after the Arab-Israeli wars of 1967 and 1973, when the Soviet Union was arming the Arabs. After the 1979 Israeli-Egyptian peace treaty, the U.S. government guaranteed Israel would continue receiving annual military and civilian aid in a 3:2 ratio, with aid given to Egypt. Since then, Israel's share has ranged between $2.1 billion and $3.7 billion a year.

In the past decade, as Israel's economy has grown, the U.S. has converted the package to military funding, under an agreement to have it at $3.15 billion a year by fiscal 2013 and keep it at that level until 2018.

Ready access

The package amounts to about 2 percent of Israel's annual gross domestic product, compared with 14 percent in 1985. But for a country with hostile neighbors, and where military spending ranks sixth in the world proportional to size of economy, that aid is vital. It represents about 20 percent of the country's annual defense budget.

It also gives Israel ready access to advanced and unique hardware.

"Israel has developed its own military industry, but there are things you can only get from the United States," said Eytan Gilboa, an expert on Israeli-American relations at Israel's Bar-Ilan University.

According to Israeli defense sources and U.S. congressional reports, Israel spends the bulk of its aid on warplanes such as F-15s and F-16s, jet fuel, high-end munitions and missile-defense systems, weaponry the Israeli military would find difficult to replace or do without.

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"If aid were to stop, it would directly affect Israel's security and have an indirect effect on its economy," said Arie Arnon, an economics professor at Ben Gurion University near Beersheba.

With that potential influence in mind, groups such as Amnesty International called on the U.S. to withhold money from Israel after its offensive in Gaza last year, saying the money was paying for weapons that were killing Palestinian civilians. But the divestment effort failed to gain traction.

Potential loss

The threat of losing military aid played a large role in Israel's decision to disengage from South Africa in the mid-1980s, said Alon Liel, a retired Israeli diplomat who served in Pretoria.

Before any such move, however, the U.S. would have to weigh its own interests. U.S. jobs are at stake, and several projects, such as the development of the advanced Arrow missile-defense system, are joint partnerships.

"There's integration ... so when you're talking about a cutoff, just threatening to do it for a few months doesn't have much impact," said Anthony Cordesman, an analyst with the Center for Strategic and International Studies in Washington, D.C. "In practical terms, this is a fantasy."

Associated Press reporter

Ian Deitch contributed

to this report.

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