Israel’s Defense Industry and US Security Aid | INSS
go to header go to content go to footer go to search
INSS logo The Institute for National Security Studies, Strategic, Innovative, Policy-Oriented Research, go to the home page
INSS
Tel Aviv University logo - beyond an external website, opens on a new page
  • Contact
  • עברית
  • Support Us
  • Research
    • Topics
      • Israel and the Global Powers
        • Israel-United States Relations
        • Glazer Israel-China Policy Center
        • Russia
        • Europe
      • Iran and the Shi'ite Axis
        • Iran
        • Lebanon and Hezbollah
        • Syria
        • Yemen and the Houthi Movement
        • Iraq and the Iraqi Shiite Militias
      • Conflict to Agreements
        • Israeli-Palestinian Relations
        • Hamas and the Gaza Strip
        • Peace Agreements and Normalization in the Middle East
        • Saudi Arabia and the Gulf States
        • Turkey
        • Egypt
        • Jordan
      • Israel’s National Security Policy
        • Military and Strategic Affairs
        • Societal Resilience and the Israeli Society
        • Jewish-Arab Relations in Israel
        • Climate, Infrastructure and Energy
        • Terrorism and Low Intensity Conflict
      • Cross-Arena Research
        • Data Analytics Center
        • Law and National Security
        • Advanced Technologies and National Security
        • Cognitive Warfare
        • Economics and National Security
    • Projects
      • Preventing the Slide into a One-State Reality
      • Contemporary Antisemitism in the United States
      • Perceptions about Jews and Israel in the Arab-Muslim World and Their Impact on the West
  • Publications
    • -
      • All Publications
      • INSS Insight
      • Policy Papers
      • Special Publication
      • Strategic Assessment
      • Technology Platform
      • Memoranda
      • Posts
      • Books
      • Archive
  • Database
    • Surveys
    • Spotlight
    • Maps
    • Real-Time Tracker
  • Events
  • Team
  • About
    • Vision and Mission
    • History
    • Research Disciplines
    • Board of Directors
    • Fellowship and Prizes
    • Internships
    • Newsletter
  • Media
    • Communications
    • Video gallery
    • Press Releases
  • Podcast
  • Newsletter
New
Search in site
  • Research
    • Topics
    • Israel and the Global Powers
    • Israel-United States Relations
    • Glazer Israel-China Policy Center
    • Russia
    • Europe
    • Iran and the Shi'ite Axis
    • Iran
    • Lebanon and Hezbollah
    • Syria
    • Yemen and the Houthi Movement
    • Iraq and the Iraqi Shiite Militias
    • Conflict to Agreements
    • Israeli-Palestinian Relations
    • Hamas and the Gaza Strip
    • Peace Agreements and Normalization in the Middle East
    • Saudi Arabia and the Gulf States
    • Turkey
    • Egypt
    • Jordan
    • Israel’s National Security Policy
    • Military and Strategic Affairs
    • Societal Resilience and the Israeli Society
    • Jewish-Arab Relations in Israel
    • Climate, Infrastructure and Energy
    • Terrorism and Low Intensity Conflict
    • Cross-Arena Research
    • Data Analytics Center
    • Law and National Security
    • Advanced Technologies and National Security
    • Cognitive Warfare
    • Economics and National Security
    • Projects
    • Preventing the Slide into a One-State Reality
    • Contemporary Antisemitism in the United States
    • Perceptions about Jews and Israel in the Arab-Muslim World and Their Impact on the West
  • Publications
    • All Publications
    • INSS Insight
    • Policy Papers
    • Special Publication
    • Strategic Assessment
    • Technology Platform
    • Memoranda
    • Posts
    • Books
    • Archive
  • Database
    • Surveys
    • Spotlight
    • Maps
    • Real-Time Tracker
  • Events
  • Team
  • About
    • Vision and Mission
    • History
    • Research Disciplines
    • Board of Directors
    • Fellowship and Prizes
    • Internships
  • Media
    • Communications
    • Video gallery
    • Press Releases
  • Podcast
  • Newsletter
  • Contact
  • עברית
  • Support Us
bool(false)

Publications

Home Publications Memoranda Israel’s Defense Industry and US Security Aid

Israel’s Defense Industry and US Security Aid

Memorandum No. 202, INSS, July 2020

עברית
Sasson Hadad
Tomer Fadlon
Shmuel Even

The defense industries are one of the cornerstones of Israel’s security. They were born of an understanding that Israel could not rely on external sources for procurement of needed materials and systems. Local production goes hand in hand with research and development in Israel, enabling the tailoring of unique weapons systems to the IDF’s changing needs, giving it advantages on the battlefield.


The IDF is widely seen as the defense industries’ central customer, and its use of the industries’ products enhances their reputation when exporting their products to countries around the world.


The defense industries rely to a great extent on orders from the Ministry of Defense, which to date have been in large part funded by converting US$815 million in American aid money into shekels for local development and procurement. According to the latest Memorandum of Understanding outlining the US military aid agreement, which covers 2019-2028, Israel’s ability to convert the aid money for use with the local industries will be gradually decreased – especially from 2025, until it ceases entirely in 2028.


As a result, the Institute for National Security Studies set up a research team in the summer of 2018 on the topic of Israel’s defense industries, with the participation of researchers from the INSS and guest experts from relevant fields. The team discussed the strategic role of Israel’s defense industries today, the US military aid, the possible implications for the Israeli defense industries of ending the conversion to shekels, and ways to cope with this process. This memorandum is the product of the comprehensive work of the research team.


Table of Contents:

The defense industries in Israel are essential in a number of respects. For one thing, Israel cannot always rely exclusively on external procurement sources. Domestic production is thus an integral part of research and development. It makes it possible to adapt unique weapons systems to the changing needs of the Israel Defense Forces (IDF) – systems that provide a critical edge to the IDF on the battlefield. Independent production capability is particularly important during a conflict in which the supply chain is affected, or when there are political restrictions on the use of certain types of arms. In the economic sphere, although the defense industry does not account for an especially large slice of Israel’s GDP, it is one of the country’s high-tech engines and a source of quality work for thousands of employees. In the political sphere, its ability to supply advanced military solutions to other countries contributes to those countries’ support for Israel...
Read more

The Israeli defense industry is one of the most prosperous industries in Israel. It originally emerged as a response to the country’s immediate military needs and to cope with restrictions on arms procurement from abroad. Today, the Israeli defense industry manufactures advanced weapons systems for the Israel Defense Forces (IDF) and enjoys a high rating in the global arms market. According to the Stockholm International Peace Research Institute (SIPRI), Israel is in eighth place in the world in arms exports, and in first place in defense exports in relation to its size...
Read more

Yaacov Lifshitz
The development of the defense industries in Israel has been characterized by radical and sometimes contradictory changes. They were built to serve local military needs, yet in recent decades the bulk of their activity does not involve supplying the Israel Defense Forces (IDF). Initially, the defense industries’ role was derived from restrictions imposed by foreign governments on the supply of weapons systems and military equipment to the IDF. Later, however, following the United States’ willingness to extend military assistance to Israel, including monetary grants to pay for the imported goods, that role changed and its development took a different course. Defense exports began as a secondary business, mainly in order to balance domestic demand fluctuations and to lower research and development (R&D) and production costs for the IDF. In time, exports grew so rapidly as to place Israel among the world’s largest defense exporters. Somewhat paradoxically, the earlier dependence on foreign suppliers has been replaced by a dependence on overseas customers. Up until the 1980s, the defense industries retained important direct influence on the development and structure of the Israeli economy, but since then their relative share has declined and they no longer constitute an influential economic actor...
Read more

Asher Tishler, Gil Pinchas
The size, development, and ownership structure of the Israeli defense industry depend on Israel’s defense needs, geopolitical changes in the Middle East, the size and power of the Israeli economy, and various aspects of Israeli society. Developments in the global defense industries and market also have a direct impact on the industry in Israel...
Read more

Jacob Nagel
The latest memorandum of understanding (MOU) on US foreign defense aid to Israel was signed in September 2016 after over three years of negotiations. The negotiations went through ups and downs, and were even temporarily suspended at one point. The new agreement covers 10 years (2019-2028), during which total American aid will be increased to $38 billion: $33 billion in ordinary defense aid (foreign military financing – FMF), compared with $30 billion in the previous agreement, and $5 billion in a new multi-year agreement for ballistic missiles defense (BMD), compared with $400 million annually with no multi-year commitment in the preceding decade...
Read more

Daniel Shapiro
The opening of US Fiscal Year 2019 on October 1, 2018 marked the beginning of the implementation of the US-Israel Memorandum of Understanding (MOU) on military assistance. Signed in September 2016 in the final months of the Obama Administration, and building on the previous 10-year MOU, it marked a major milestone in the US-Israel defense partnership...
Read more

Asher Tishler, Guy Elfassy, Ronny Manos
In September 2016, the Memorandum of Understanding (MOU) was signed between the governments of Israel and the United States for a $38 billion American defense aid package under the Foreign Military Funding (FMF) Program for the period 2019-28 (hereafter “the new aid agreement”)...
Read more

Saul Bronfeld
The conference at the Institute for National Security Studies in Tel Aviv on the subject of the defense industries can be summarized in two sentences: first, the defense industries are very important to the IDF, the economy, and the country’s outlying areas; and second, a reduction of the shekel component in US aid will have a severe negative impact on Israel’s security, the economy, and the local defense industries...
Read more

Guy Paglin
This article analyzes a number of the trends currently affecting the defense innovation system (DIS) in Israel, especially the defense industry. Among these trends are: the change in the character of warfare, the variety of threats and new domains; the modern weapons systems necessary to deal with the change; the digital transformation, information technologies (IT) revolution and emergence of the cyber domain; the transfer of technology (TOT) revolution and the use of commercial off-the-shelf (COTS) products and technologies in weapons systems; the relative decline in defense R&D investments (in comparison with commercial R&D); and the anticipated decline in the volume of orders for local industry, resulting from the most recent changes in the security MOU between Israel and the US...
Read more

Shmuel Even
US military aid contributes greatly to Israel’s security, but also imposes restrictions. Opinions (unofficial ones) are occasionally expressed in Israel arguing that the time may have come for the country to stand on its own two feet and voluntarily forgo this military aid for the sake of its independent image and in order to reduce the possibility of the United States exerting pressure on it. Moreover they argue that the annual US aid accounts for only 1 percent of Israel’s GDP and Israel has already relinquished economic aid from the United States in the past. This article examines the pros and cons of US military aid to Israel, and concludes that the advantages of the aid clearly outweigh its disadvantages...
Read more

Sasson Hadad
On September 15, 2016, the United States and Israel signed the third defense aid MOU for 2019-2028, amounting to $38 billion – $3.8 billion a year. By 2019, Israel had received over $100 billion in defense aid since its founding. This is a substantial sum that eased the defense burden on Israel, and constituted the main source of funding for the IDF’s build-up in American technology and primary weapons systems. The aid in 2019, constitutes approximately 1 percent of Israel’s GDP, 2.5 percent of the state budget, and 20 percent of the defense budget. This sizable amount has considerable advantages beyond the money, in the form of an uncompromising American commitment to Israel’s security and direct access to American technology and the American defense establishment. Furthermore, American aid benefits the American defense industry, which receives additional contracts and is able to sell to other countries that regard the IDF as a sophisticated user whose choice constitutes important sales promotion. It also benefits the American defense establishment, which gains invaluable intelligence and operational knowledge from the Israeli defense establishment...
Read more
The opinions expressed in INSS publications are the authors’ alone.
Publication Series Memoranda
TopicsEconomics and National SecurityIsrael-United States RelationsMilitary and Strategic Affairs
עברית

Events

All events
The 18th Annual International Conference
25 February, 2025
08:15 - 16:00

Related Publications

All publications
Shutterstock
Trends in Israel–China Trade in 2024
Against the backdrop of the war in Gaza and the global trade war, how did Israel’s trade with China fare last year — and what are the major challenges on the horizon?
25/05/25
Shutterstock
Three Events, One Concern: A Threat to Israel’s Economy
Why has the likelihood of a financial crisis in Israel increased?
28/04/25
Shutterstock
The 2025 State Budget—Confirmation of the Credit Rating Agencies’ Concerns
What are the main characteristics of the budget approved by the government, and why does it fail to meet the broader economic needs of the country or provide a reason for credit rating agencies to reverse their decision to downgrade Israel’s credit rating?
02/12/24

Stay up to date

Registration was successful! Thanks.
  • Research

    • Topics
      • Israel and the Global Powers
      • Israel-United States Relations
      • Glazer Israel-China Policy Center
      • Russia
      • Europe
      • Iran and the Shi'ite Axis
      • Iran
      • Lebanon and Hezbollah
      • Syria
      • Yemen and the Houthi Movement
      • Iraq and the Iraqi Shiite Militias
      • Conflict to Agreements
      • Israeli-Palestinian Relations
      • Hamas and the Gaza Strip
      • Peace Agreements and Normalization in the Middle East
      • Saudi Arabia and the Gulf States
      • Turkey
      • Egypt
      • Jordan
      • Israel’s National Security Policy
      • Military and Strategic Affairs
      • Societal Resilience and the Israeli Society
      • Jewish-Arab Relations in Israel
      • Climate, Infrastructure and Energy
      • Terrorism and Low Intensity Conflict
      • Cross-Arena Research
      • Data Analytics Center
      • Law and National Security
      • Advanced Technologies and National Security
      • Cognitive Warfare
      • Economics and National Secutiry
    • Projects
      • Preventing the Slide into a One-State Reality
      • Contemporary Antisemitism in the United States
      • Perceptions about Jews and Israel in the Arab-Muslim World and Their Impact on the West
  • Publications

    • All Publications
    • INSS Insight
    • Policy Papers
    • Special Publication
    • Strategic Assessment
    • Technology Platform
    • Memoranda
    • Database
    • Posts
    • Books
    • Archive
  • About

    • Vision and Mission
    • History
    • Research Disciplines
    • Board of Directors
    • Fellowship and Prizes
    • Internships
    • Support
  • Media

    • Communications
    • Video Gallery
    • Press Release
    • Podcast
  • Home

  • Events

  • Database

  • Team

  • Contact

  • Newsletter

  • עברית

INSS logo The Institute for National Security Studies, Strategic, Innovative, Policy-Oriented Research, go to the home page
40 Haim Levanon St. Tel Aviv, 6997556 Israel | Tel: 03-640-0400 | Fax: 03-744-7590 | Email: info@inss.org.il
Developed by Daat A Realcommerce company.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.