The 1998 defense budget amounted to NIS 34.5b. Also authorized for 1998 is NIS 1.9b in expenditure dependent on revenue from sale of equipment and services. Not included in the above table: NIS 53m for redeployment of forces under the Interim Agreement with the Palestinian Authority and NIS 18m to purchase heavy ammunition from TAAS Israel Industries.

This budget will be 6.5% larger than the 1997 budget in real terms if its underlying inflation and exchange rate assumptions prove accurate. The domestic budget rose by 2.2% (NIS 539m), two across-the-board budget cuts -- one for 1997 and one for 1998 -- more than offset by special purpose budget increases.

Although the Defense Ministry has more budget latitude than other ministries, NIS 3.26b is earmarked upfront for various uses, from defense industry projects (NIS 1.066b) to replacement of communications equipment because of radio frequencies vacated for a third civilian cell-phone operator (NIS 37m).

US Assistance
Since the beginning of the decade, the US assistance component of the budget has held steady at $1.8b annually. In 1996 and 1997, another $50m per annum was added for antiterrorism activity. This assistance is reserved for procurements in the US, except for $457m authorized for domestic spending and $18m spent in Europe. Some US aid is used to acquire American manufactures that are really upgrades of Israeli products. For example, the IAF procured 45 Popeye air-to-surface missiles -- developed by Rafael, manufactured in conjunction with Lockheed-Martin -- with $41m in assistance money, for use on the 25 F-15I aircraft scheduled for delivery in 1998.

Local Currency Budget
The local currency budget, too, has remained at NIS 24b-NIS 25b since 1992, when assistance to defense industries and institutionalization of "intifada compensation" for the IDF augmented it by more than NIS 1b. This end of the defense budget works out to about $1,200 per capita. By comparison, the US defense budget comes to $248b or slightly under $1,000 per capita.

Defense Industries
The state-owned defense industries continued to restructure and downsize, aided by long-term State assistance illustrated in the table below. All continue to turn out quality products, and all join hundreds of civilian firms in promoting exports. The 1997 report of the Institute for Strategic Studies in London ranked Israel fifth among the world's arms exporters, after the US, Great Britain, France, and Russia. Israel's reported military export revenue in 1996, $1.3b, was deemed typical of exports over the past decade and represented 3.5% of the estimated $37.5b in world sales that year.