Order Code RL33222
CRS Report for Congress
Received through the CRS Web
U.S. Foreign Aid to Israel
January 5, 2006
Jeremy M. Sharp
Middle East Policy Analyst
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
U.S. Foreign Aid to Israel
This report provides an overview of U.S. foreign assistance to Israel. It includes
a review of past aid programs, data on annual assistance figures, and an analysis of
current issues. The report will be updated annually to reflect developments over the
previous year. For the most recent action on aid to Israel, see CRS Issue Brief
IB82008, Israel: Background and Relations with the United States, by Carol
Migdalovitz. For information on overall U.S. assistance to the Middle East, see CRS
Report RL32260, U.S. Foreign Assistance to the Middle East: Historical
Background, Recent Trends, and the FY2006 Request, by Jeremy M. Sharp.
P.L. 109-102 (H.R. 3057), the FY2006 Foreign Operations Appropriations Act,
provides the full amount of the Administration request for Israel, including $2.28
billion in military aid, $240 million in economic aid, and $40 million in refugee
Israel is the largest cumulative recipient of U.S. foreign assistance since World
War II. From 1976-2004, Israel was the largest annual recipient of U.S. foreign
assistance, having recently been supplanted by Iraq. Since 1985, the United States has
provided nearly $3 billion in grants annually to Israel.
Over the years, Israel has developed an advanced industrial economy, which,
according to the World Bank, places it among the top 40 richest nations in terms of
per capita income (between Greece and Cyprus respectively). With Israel becoming
more economically self-sufficient, former Israeli Prime Minister Benjamin
Netanyahu told a joint session of Congress in 1996 that Israel’s need for economic
aid would be reduced over time. In 1998, Israel proposed gradually eliminating the
$1.2 billion economic aid and increasing the $1.8 billion in military aid by $60
million per year over a 10-year period beginning in the year 2000. Subsequent
appropriations for Israel have included cuts of approximately $120 million in
economic aid and increases of $60 million in military aid each fiscal year.
Strong congressional support for Israel has resulted in Israel’s receiving benefits
that may not be available to other countries. For example, Israel can use U.S. military
assistance both for research and development in the United States and for military
purchases from Israeli manufacturers. In addition, all U.S. foreign assistance
earmarked for Israel is delivered in the first 30 days of the fiscal year. Most other
recipients normally receive their aid in staggered installments. The United States
gives all Economic Support Funds (ESF) directly to the government of Israel as a
cash transfer grant rather than allocating funds for specific development projects.
Following Israel’s 2005 withdrawal from the Gaza Strip, Israeli officials
reportedly have sought additional aid from the Bush Administration. Additional U.S.
assistance could be used to fund development projects in the Negev desert and
Galilee region. Israel reportedly suspended its initial aid request in the aftermath of
hurricane Katrina. Although the Administration has not submitted a formal request
for these new projects to Congress, there is some speculation that the proposed
assistance package could range anywhere from $800 million to $1.5 billion.
U.S.-Israeli Relations and the Role of Foreign Aid . . . . . . . . . . . . . . . . . . . . . . . . 1
Historical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1948-1970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1970-Present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1979 Israeli-Egyptian Peace Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Emergency Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Assistance Policy During Heightened U.S.-Israeli Tensions . . . . . . . . . 4
Using Aid to Support the Peace Process . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S. Economic Aid to Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Economic Support Funds (ESF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Cash Grant & Early Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Israel’s Use of ESF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Phasing Out Economic Aid to Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Migration & Refugee Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Loan Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Loan Guarantees for Soviet Immigration . . . . . . . . . . . . . . . . . . . . . . . . 7
Loan Guarantees for Economic Recovery . . . . . . . . . . . . . . . . . . . . . . . 9
American Schools and Hospitals Abroad Program (ASHA) . . . . . . . . . . . . 10
U.S. Military Assistance to Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Foreign Military Financing (FMF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Early Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FMF for in-Country Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Recent U.S. Military Sales to Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Appropriations for U.S.-Israeli Cooperative Programs . . . . . . . . . . . . . . . . . . . . 12
Defense Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Arrow Anti-Missile System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
U.S.-Israeli Scientific & Business Cooperation . . . . . . . . . . . . . . . . . . . . . . 13
Appendix: Recent Aid to Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Tables
Table 1. Housing Loan Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 2. Loan Guarantees for Soviet Immigration . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3. FY2003 Loan Guarantees for Economic Recovery . . . . . . . . . . . . . . . . 9
Table 4. ASHA Program Grants to Israeli Institutions, FY2000-FY2005 . . . . . 10
Table 5. U.S. Contributions to U.S.-Israel Arrow Weapons System
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 6. Recent U.S. Aid to Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 7. U.S. Assistance to Israel, FY1949-FY1996 . . . . . . . . . . . . . . . . . . . . . 16
U.S. Foreign Aid to Israel
U.S.-Israeli Relations and the Role of Foreign Aid
For decades, the United States and Israel have maintained strong bilateral
relations based on a number of factors, including strong domestic U.S. support for
Israel; shared strategic goals in the Middle East (concern over Iran, Syria, Islamic
extremism); shared democratic values; and historic ties dating back to U.S. support
for the creation of Israel in 1948. U.S. economic and military aid has been a major
component in cementing and reinforcing these ties. Although there have been
occasional differences over Israel’s settlements in the West Bank and Gaza Strip
(prior to the 2005 disengagement), other Middle East peace issues, and Israeli arms
sales to China, successive Administrations and many lawmakers have long
considered Israel to be a reliable partner in the region, and Israel’s aid packages have
reflected this sentiment.
U.S. military aid has helped transform Israel’s armed forces into one of the most
technologically sophisticated militaries in the world. U.S. military aid for Israel has
been designed to maintain Israel’s qualitative edge over neighboring militaries, since
Israel must rely on better equipment and training to compensate for a manpower
deficit in any potential regional conflict. U.S. military aid, a portion of which may
be spent on procurement from Israeli defense companies, also has helped Israel to
build a domestic defense industry, which ranks as one of the top ten suppliers of arms
For many years, U.S. economic aid helped subsidize a lackluster Israeli
economy, though since the rapid expansion of Israel’s hi-tech sector in the 1990s
(sparked partially by U.S.-Israeli scientific cooperation), Israel is now considered a
fully industrialized nation with an economy on par with some Western European
countries. Consequently, Israel and the United States have agreed to gradually phase
out grant economic aid to Israel.
The use of foreign aid to help accelerate the Middle East peace process has had
mixed results. The promise of U.S. assistance to Israel and Egypt during peace
negotiations in the late 1970s enabled both countries to take the risks needed for
peace, and may have helped convince them that the United States was committed to
supporting their peace efforts. Promoting Israeli-Palestinian peace has proven to be
a far greater challenge for U.S. policy makers, as most analysts consider foreign aid
to be tangential in solving complex territorial issues and overcoming deeply rooted
mistrust sown over decades.
Critics of U.S. aid policy, particularly some in the Middle East, have argued that
U.S. foreign aid exacerbates tensions in the region. Many Arab commentators insist
that U.S. assistance to Israel indirectly causes suffering to Palestinians by supporting
Israeli arms purchases. In the past, the United States has reduced its loan guarantees
to Israel in opposition to continued settlement building, but it has not acted to cut
Israel’s military or economic grant aid.
U.S. government assistance to Israel began in 1949 with a $100 million ExportImport Bank Loan.1 For the next two decades, U.S. aid to Israel was modest and was
far less than in later years.2 Although the United States provided moderate amounts
of economic aid (mostly loans), Israel’s main early patron was France, which
provided Israel with advanced military equipment and technology.3 In 1962, Israel
purchased its first advanced weapons system from the United States (Hawk
antiaircraft missiles).4 In 1968, a year after Israel’s victory in the Six Day War in
June 1967, the Johnson Administration, with strong support from Congress,
approved the sale of Phantom aircraft to Israel, establishing the precedent for U.S.
support for Israel’s qualitative military edge over its neighbors.5
Large-scale U.S. assistance for Israel increased considerably after a series of
Arab-Israeli wars created a sense among many Americans that Israel was continually
under siege.6 Consequently, Congress, supported by broad U.S. public opinion,
committed to strengthening Israel’s military and economy through large increases in
foreign aid. From 1966 through 1970, average aid per year increased to about $102
million and military loans increased to about 47% of the total. In 1971, the United
In 1948, President Harry Truman, who sympathized with the plight of Israel in its early
days, placed an arms embargo on Israel and her Arab neighbors in order to keep the United
States neutral in the ongoing Arab-Israeli conflict. The Tripartite Declaration of 1950
reaffirmed U.S., British, and French opposition to the development of Arab-Israeli arms
From 1949 through 1965, U.S. aid to Israel averaged about $63 million per year, over 95%
of which was economic development assistance and food aid. A modest military loan
program began in 1959.
France supplied Israel with military equipment mainly to counter Egypt. In the 1950s and
early 1960s, Egypt antagonized France by providing arms and training for Algeria’s war for
independence against France.
“America’s Staunchest Mideast Ally,” Christian Science Monitor, August 21, 2003.
Section 303 of P.L. 90-554, Foreign Assistance Act of 1968, expresses the sense of
Congress to see the United States negotiate the sale of supersonic aircraft to Israel.
Between 1967 and 1973, Israel and its Arab neighbors fought the June 1967 War, the
ensuing War of Attrition (1969), and the October 1973 War. Israel also was engaged in low
level guerrilla warfare with the Palestinian Liberation Organization and other groups, which
had bases in Jordan and later in Lebanon. The 1974 emergency aid for Israel, following the
1973 war, included the first U.S. military grant aid to Israel.
States provided Israel with military loans of $545 million, up from $30 million in
1970. Also in 1971, Congress first designated a specific amount of aid for Israel in
legislation (an “earmark”). Economic assistance changed from project aid, such as
support for agricultural development work, to a Commodity Import Program (CIP)
for the purchase of U.S. goods.7 In effect, the United States stepped in to fill the role
that France had relinquished after French President Charles de Gaulle refused to
supply Israel with military hardware to protest its preemptive launch of the Six Day
War in June 1967. Israel became the largest recipient of U.S. foreign assistance in
1974. From 1971 to the present, U.S. aid to Israel has averaged over $2.6 billion per
year, two-thirds of which has been military assistance.
1979 Israeli-Egyptian Peace Treaty. The 1979 Camp David Peace Treaty
between Israel and Egypt ushered in the current era of U.S. financial support for
peace between Israel and her Arab neighbors. To facilitate a complete cessation of
hostilities and Israel’s return of the Sinai Peninsula, the United States provided a total
of $7.5 billion to both parties in 1979. The “Special International Security Assistance
Act of 1979” (P.L. 96-35) provided military and economic grants to Israel and Egypt
at a ratio of 3:2, respectively.8
Emergency Aid. U.S. assistance also has been used to help ease financial
pressures on the Israeli treasury during recession.9 In 1985, the United States
significantly increased U.S. assistance to Israel, with Congress passing a special
economic assistance package of $1.5 billion in order to help the Israeli economy cope
with soaring inflation and economic stagnation.10 As part of the assistance
agreement, the United States and Israel formed the U.S.-Israel Joint Economic
Development Group (JEDG) in order to support Israeli economic reforms.11 In
The Commodity Import Program for Israel ended in 1979 and was replaced with direct,
largely unconditional cash transfers.
This ratio is not found in the text of the 1978 and 1979 Camp David agreements. U.S.
officials have not formally recognized the ratio. Egypt believes that, since it took political
risks in making peace with Israel, the United States should be even-handed in its assistance
policy to the region. The Egyptian government claims that a 3:2 ratio between Israel and
Egypt was established during the negotiations.
Beginning in the mid-1970s, Israel could no longer meet its balance of payments and
government deficits with imported capital (gifts from overseas Jews, West German
reparations, U.S. aid) and began to rely more on borrowed capital. Growing debt servicing
costs, mounting government social services expenditures, perennial high defense spending,
and a stagnant domestic economy combined with worldwide inflation and declining foreign
markets for Israeli goods pushed the Israeli economy into a near crisis situation in the mid1980s.
See Title I, Chapter V of P.L. 99-88, Economic Support Fund assistance for Israel, Egypt,
and Jordan. In 1985, the United States and Israel also concluded a Free Trade Agreement,
which dramatically boosted Israeli exports to the United States.
The JEDG meets on an annual basis to discuss financial sector and labor market reforms,
trade liberalization, and privatization. The JEDG also monitors the disbursement of U.S.
loan guarantees to Israel. The last meeting took place in April 2005.
addition, all U.S. military aid to Israel was converted into grants in 1985.12 U.S.
economic aid had been converted to a cash grant transfer in 1981.
During times of domestic unrest in Israel and regional instability, U.S. aid to
Israel has increased. In 1991, Congress provided Israel $650 million in emergency
grants to pay for damage and other costs from Operation Desert Storm. In addition,
Israel was given Patriot missiles to defend against Iraqi Scud missile attacks. After
the 1991 collapse of the Soviet Union and the ensuing increase in migration of
Russian and other Eastern bloc Jews to Israel, Congress approved $10 billion in loan
guarantees for Israel to help it absorb immigrants and provide them with adequate
social services. Finally, in the aftermath of the 2003 Iraq invasion, Congress passed
the FY2003 Emergency Supplemental Appropriations Act (P.L. 108-11), which
included $9 billion in loan guarantees over three years for Israel’s economic recovery
and $1 billion in military grants.
Assistance Policy During Heightened U.S.-Israeli Tensions. Although
U.S. assistance to Israel has remained high over several decades, there have been
some instances when the United States acted to restrict aid or rebuke Israel for
possible improper use of U.S.-supplied military equipment. The 1952 Mutual
Defense Assistance Agreement and subsequent arms agreements between Israel and
the United States limit the use of American military equipment to defensive
purposes. The Arms Export Control Act states that the United States may stop aid
to countries which use U.S. military assistance for purposes other than “legitimate
self defense.” In 1982, the Reagan Administration determined that Israel “may” have
violated its 1952 Mutual Defense Assistance Agreement with the United States by
reportedly using U.S.-supplied anti-personnel cluster bombs against civilian targets
during its military operations in Lebanon and the siege of Beirut.13 As a result, the
Reagan Administration prohibited U.S. export of cluster bombs to Israel for six years.
The Reagan Administration also suspended the delivery of F-16 aircraft to Israel after
it bombed the Iraqi nuclear reactor at Osirak in 1981.
Over the last two decades, the United States and Israel have disagreed over
Israeli sales of sensitive U.S. technologies to China.14 U.S. objections have largely
been communicated by successive Administrations and Pentagon officials, though
in recent years, some Members of Congress expressed dissatisfaction over one
reported sale. In 2000, Representative Sonny Callahan, former Chairman of the
House Appropriations Subcommittee on Foreign Operations, sought to withhold
$250 million in aid to Israel unless it cancelled a planned sale to China of Airborne
The 1974 emergency aid for Israel, following the 1973 war, included the first military
See, CRS Report RL30982, U.S. Defense Articles and Services Supplied to Foreign
Recipients: Restrictions on Their Use, by Richard Grimmett.
U.S.-Israeli disputes over arms sales also have been generated by U.S. sales of “sensitive”
equipment to friendly Arab states, though Israeli analysts note that Israel, because of its
dependence on U.S. military aid, has little leverage in opposing such sales.
Early Warning System.15 On June 20, 2000, the House Foreign Operations
Subcommittee voted nine to six to defeat Callahan’s proposal.16 In 2005, the United
States suspended Israel from participating in the development of the Joint Strike
Fighter (JSF) over Israeli plans to upgrade Chinese drone aircraft. Israel canceled the
sale and will be part of the JSF program.
Continued Israeli settlement building in the West Bank and Gaza Strip prior to
its departure from Gaza in 2005 led the United States to reduce the amount of loans
it has extended to Israel. By law, U.S. loan guarantees cannot be used to finance
Israeli settlement building in areas occupied after the 1967 War. In the mid-1990s
and then again in 2003, the United States reduced loan guarantees to Israel by an
amount equal to Israel’s estimated spending on settlement construction in the West
Bank and Gaza.
Using Aid to Support the Peace Process. During the 1990s, the United
States provided aid to support the Israeli-Palestinian peace process. In late 1998,
Israel requested $1.2 billion in additional U.S. aid to fund the movement of troops
and military installations out of areas of the West Bank as called for in the October
23, 1998 Wye Agreement.17 The Clinton Administration requested $1.2 billion in
military aid for Israel to implement the Wye Agreement despite the fact that its
implementation had stalled. President Clinton vetoed H.R. 2606, the FY2000 foreign
operations appropriations bill, in part because it did not include the Wye funding. On
November 29, 1999, the President signed the consolidated appropriations bill, H.R.
3194 (P.L. 106-113), which included in Division B passage of H.R. 3422, the Foreign
Operations Appropriations bill. Title VI of H.R. 3422 included the $1.2 billion Wye
funding for Israel.
U.S. Economic Aid to Israel
Economic Support Funds (ESF)
Cash Grant & Early Transfer. The United States gives all Economic
Support Funds (ESF) directly to the government of Israel as a grant cash transfer
rather than allocating funds for specific development projects or as a Commodity
Import program. Prior to 1981, Israel had received economic aid in the form of both
grants and loans. By law, ESF funds to Israel must be transferred in one lump sum
Eric Pianin, “Israel-China Radar Deal Opposed,” Washington Post, April 7, 2000.
According to the House Committee, “the Committee is very disturbed by reports that
Israel is preparing to provide China with an airborne radar system that could threaten both
the forces of democratic Taiwan and the United States in the region surrounding the Taiwan
Strait. The Committee intends to revisit this issue as the appropriations process moves
forward.” H.Rept. 106-720, accompanying H.R. 4811 (P.L. 106-429), the FY2001 Foreign
Operations Appropriations Act.
The full text of the 1998 Wye River Memorandum, a U.S.-brokered Israeli-Palestinian
security agreement, is available online at [http://www.mfa.gov.il/NR/exeres/EE54A2898F0A-4CDC-93C9-71BD631109AB.htm].
within the first 30 days of the new fiscal year or passage of the appropriation act,
whichever is later. Before 1982, Israel had received its annual ESF in quarterly
Israel’s Use of ESF. According to the U.S. State Department, economic aid
to Israel is not conditioned on economic policy reform, though U.S. assistance may
be used to purchase goods and services from the United States; to service debt owed
to, or guaranteed by, the U.S. government (USG); to pay to the USG any subsidies
or other costs associated with loans guaranteed by the USG; to service Foreign
Military Sales debt; and to defray the costs of other activities to support Israel’s
economic needs. Although there is no legally mandated accounting for Israel’s use
of economic aid, the Israeli government reportedly keeps U.S. officials informed of
its ESF spending.
Phasing Out Economic Aid to Israel. On July 10, 1996, former Israeli
Prime Minister Binyamin Netanyahu told a joint session of the U.S. Congress: “In
the next four years, we will begin the long-term process of gradually reducing the
level of your generous economic assistance to Israel.” Former Israeli Finance
Minister Yaacov Neeman met with some House Appropriations Committee members
in January 1998 to negotiate a $600 million reduction in Israel’s $3 billion annual aid
package by decreasing the $1.2 billion economic aid to zero over a 10-year period
while increasing Israel’s $1.8 billion military aid up to $2.4 billion in the same
period. Beginning in FY1999, Congress has reduced the amount of ESF going to
Israel by $120 million per year and increased the amount of Foreign Military
Financing (FMF) by $60 million per year. The phased reduction in U.S. economic
aid to Israel is scheduled to be completed in 2008.
Migration & Refugee Assistance
Beginning in 1973, Israel has received grants from the State Department’s
Migration and Refugee Assistance fund (MRA)18 to assist in the resettlement of
humanitarian migrants to Israel. Funds are paid to the United Israel Appeal, a private
philanthropic organization in the United States, which in turn transfers the funds to
the Jewish Agency.19 Between 1973 and 1991, the United States gave about $460
million for resettling Jewish refugees in Israel. Annual amounts have varied from a
low of $12 million to a high of $80 million, based on the number of Jews leaving the
former Soviet Union and other areas for Israel. The Refugee and Migration funds for
Israel are earmarked by Congress; the Administration usually does not request
specific amounts of Refugee and Migration assistance for Israel.
Congress has changed the earmark language since the first refugee resettlement
funds were appropriated in 1973. At first, the congressional earmark said the funds
were for “resettlement in Israel of refugees from the Union of Soviet Socialist
Republics and from Communist countries in Eastern Europe.” But in 1985, the
language was simplified to “refugees resettling in Israel” to ensure that Ethiopian
The Refugee and Migration Account (MRA) is authorized as part of the State Department
funding, but is appropriated through the Foreign Operations Appropriations bill.
The Jewish Agency’s website is available at [http://www.jafi.org.il/].
Jews would be covered by the funding. Technically, the earmark designates funds
for refugee resettlement, but in Israel little differentiation is made between “refugees”
and other immigrants, and the funds are used to support the absorption of all
Overview. Since 1972, the United States has extended loan guarantees to
Israel to assist with housing shortages, Israel’s absorption of new immigrants from
the former Soviet Union and Ethiopia, and its economic recovery following the 20002003 recession sparked by the renewal of Israeli-Palestinian violence. Loan
guarantees are a form of indirect U.S. assistance to Israel, since they enable Israel to
borrow from commercial sources at lower rates and not from the United States
government. Congress directs that subsidies be set aside in a U.S. Treasury account
for possible default. These subsidies, which are a percentage of the total loan (based
in part on the credit rating of the borrowing country; in the case of the loan
guarantees in the 1990s, the subsidy amount was 4.1%), have come from the U.S. or
the Israeli government. Israel has never defaulted on a U.S.-backed loan guarantee,
as it needs to maintain its good credit rating in order to secure financing to offset
annual budget deficits.
Table 1. Housing Loan Guarantees
Loan Guarantees for Soviet Immigration. In late 1990, the press reported
that Israel would request $10 billion in loan guarantees from the United States.
Under the proposal, Israel would borrow $10 billion from U.S. commercial
establishments, and the United States government would guarantee the loans against
default. Israeli officials said the funds were needed to finance housing, jobs, and
infrastructure for an anticipated 1 million Soviet Jewish immigrants that were
expected between 1991 and 1995. During April 1991 negotiations over Israel’s
request for emergency funds for recovery from Iraqi attacks during Operation Desert
Storm, Israel agreed to postpone its guaranteed loan request until September 1991.
In September, then President George H.W. Bush asked Congress to delay
consideration of the Israeli request until January 1992 because the President feared
that the loan request would jeopardize Secretary of State Baker’s negotiations for a
peace conference. Reluctantly, most Members of Congress agreed.
When Congress returned in January 1992, Secretary Baker said the
Administration would support the Israeli request only if Israel agreed to freeze all
settlement activity in the occupied territories. In a series of negotiations among the
Administration, Congress, and Israel, several compromises were offered: reducing
the U.S. loan guarantees by an amount equal to the Israeli expenditures on
settlements in the occupied territories, reducing the annual amount of the loan
guarantees, or allowing Israel to complete housing projects underway in the
territories but to ban new projects. None of the proposals were acceptable to all the
parties. With the stalemate, it appeared that Israel’s loan guarantee request was to
be postponed until consideration of the FY1993 foreign aid legislation later that year.
Following the June 1992 Israeli elections, which Yitzhaq Rabin and his Labor
party won, relations between the United States and Israel improved because the Bush
Administration found the new Israeli leaders more accommodating toward peace
talks with Arab states. President Bush announced in August that he would propose
approving the loan guarantees. Congress attached the loan guarantee authorization
to the Foreign Operations Appropriation bill that passed on October 5, 1992 (Title
VI, P.L. 102-391, signed into law on October 6, 1992). The United States approved
the first $2 billion tranche in December 1992, and Israel issued the first $1 billion in
bonds in March 1993.
Table 2. Loan Guarantees for Soviet Immigration
($ in millions)
On September 30, 1993, the President notified Congress, that the $2 billion in
loan guarantees for FY1994 would be reduced by $437 million, the amount Israel
spent in FY1993 on Jewish settlements in geographic areas occupied after the Six
Day War in June 1967. 20 On September 30, 1994, the President notified Congress
that the $2 billion in loan guarantees for FY1995 would be reduced by $216.8
million, an amount equal to the amount Israel spent on Jewish settlements in the
occupied territories in FY1994. The President notified Congress in September 1995
that the amount for FY1996 would be reduced by $60 million, and notified Congress
in September 1996 that the amount for FY1997 also would be reduced by $60
million. The $10 billion ($2 billion each year) authorized for Israel for
FY1993-FY1997, has been reduced by $774 million because of settlement activity.
Of the $9.226 billion available to Israel from FY1993 to FY1997, Israel drew loans
worth about $6.6 billion.
Loan Guarantees for Economic Recovery. In 2003, Prime Minister
Ariel Sharon requested an additional $8 billion in loan guarantees to help Israel’s
failing economy. The loan guarantee request accompanied a request for an additional
$4 billion in military grants to help Israel prepare for possible attacks during an
anticipated U.S. war with Iraq and Israeli efforts to end the Palestinian uprising. P.L.
108-11, the FY2003 Emergency Wartime Supplemental Appropriations Act, included
$9 billion in loan guarantees over three years for Israel’s economic recovery and $1
billion in military grants. P.L. 108-11 stated that the proceeds from the loan
guarantees could be used only within Israel’s pre-June 1967 borders, that the annual
loan guarantees could be reduced by an amount equal to the amount Israel spends on
settlements in the occupied territories, that Israel would pay all fees and subsidies,
and that the President would consider Israel’s economic reforms when determining
terms and conditions for the loan guarantees. On November 26, 2003, the
Department of State announced that the $3 billion loan guarantees for FY2003 were
reduced by $289.5 million because Israel continued to build settlements in the
occupied territories and continued construction of the security barrier separating the
Israelis and Palestinians.
Table 3. FY2003 Loan Guarantees for Economic Recovery
($ in millions)
P.L. 108-11 *
Source: U.S. State Department.
* P.L. 108-447, the FY2005 Consolidated Appropriations Bill, extended the authority of the loan
guarantees from FY2005-FY2007.
Loan reductions were in accordance with Section 226(d) of the Foreign Assistance Act
as amended by Sec. 601 of the Foreign Operations, Export Financing, and Related Programs
Appropriations Act, 1993 (P.L. 102-391; 106 Stat. 1699).
American Schools and Hospitals Abroad Program (ASHA)21
Through Foreign Operations appropriations legislation, Congress has funded the
ASHA program as part of the overall Development Assistance (DA) appropriation
to the United States Agency for International Development (USAID). According to
USAID, ASHA is designed to strengthen self-sustaining schools, libraries and
medical centers that best demonstrate American ideas and practices abroad. ASHA
has been providing support to institutions in the Middle East since 1957, and there
are a number of Israeli universities and hospitals that have been recipients of ASHA
grants. Over the past several years, Israeli institutions, such as the Shaare Zedek
Medical Center in Jerusalem and the Hadassah Medical Organization, have received
ASHA funding. The Hadassah Medical Organization was nominated for the 2005
Nobel Peace Prize for its equitable treatment of Palestinians and Israelis patients.
According to USAID, institutions based in Israel have received the most program
funding in the Middle East region.
Table 4. ASHA Program Grants to Israeli Institutions,
U.S. Military Assistance to Israel
Foreign Military Financing (FMF)
Overview. Congress has taken measures to strengthen Israel’s security and
maintain its “qualitative military edge” (QME) over neighboring militaries. Annual
Foreign Military Financing (FMF) grants to Israel represent about 23 % of the overall
According to USAID, recipients of ASHA grants on behalf of overseas institutions must
be private U.S. organizations, headquartered in the United States, and tax-exempt. The U.S.
organization must also serve as the founder for and/or sponsor of the overseas institution.
Schools must be for secondary or higher education and hospital centers must conduct
medical education and research outside the United States. Grants are made to U.S. sponsors
for the exclusive benefit of institutions abroad. See [http://www.usaid.gov/our_work/crosscutting_programs/asha/].
Israeli defense budget, and FMF levels are expected to increase incrementally by $60
million a year to a level of $2.4 billion by 2008.
Early Transfer. Congress has mandated that Israel receive its FMF aid in a
lump sum during the first month of the fiscal year. Once disbursed, Israel’s military
aid is transferred to an interest bearing account with the Federal Reserve Bank. Israel
has used interest collected on its military aid to pay down its debt (non-guaranteed)
to the United States, which, according to the U.S. Treasury Department, stood at $1. 5
billion as of December 2003.22 Israel cannot use accrued interest for defense
procurement inside Israel.
FMF for in-Country Purchase. Most analysts consider Israel’s ability to use
a significant portion of its annual military aid for procurement spending in Israel to
be the most valuable aspect of its assistance package; no other recipient of U.S.
military assistance has been granted this benefit. The proceeds to Israeli defense
firms from purchases with U.S. funds have allowed the Israeli defense industry to
achieve necessary economies of scale and become highly sophisticated. Successive
Administrations and many lawmakers believe that a strong domestic Israeli defense
industry is crucial to maintaining Israel’s technological edge over its neighbors. In
2004, Israel was the eighth largest arms supplier in the world.
Israel was first granted FMF for use in Israel in 1977, when it asked for and
received permission to use $107 million in FY1977 FMF funds to develop the
Merkava tank (prototype completed in 1975 and added to Israeli arsenal in 1979).
Several years later, Israel asked for a similar waiver to develop the Lavi
ground-attack aircraft, and Congress responded with legislation allowing Israel to
spend $250 million of FMF in Israel to develop the Lavi. It was estimated that the
United States provided between $1.3 and $1.8 billion in Lavi development costs
before the United States and Israel agreed to terminate the project in 1988. 23 In order
to defray the cancellation costs of the Lavi program, the United States agreed to raise
the FMF earmark for procurement in Israel to $400 million.
Since FY1988, the FMF procurement earmark for purchases within Israel has
been incorporated into annual foreign assistance legislation.
approximately one quarter of Israel’s FMF funds may be used for domestic defense
purchases ($ 595 million in FY2006). As U.S. military aid to Israel has increased, the
amount set aside for defense purchases in Israel also has increased.
Recent U.S. Military Sales to Israel. Israel uses almost 75% of its FMF
funds to purchase U.S. defense equipment. By law, Congress must be notified of any
new purchase agreement. The Department of Defense’s Defense Security
Cooperation Agency (DSCA) is charged with managing U.S. arms sales to Israel.
Recent sales include :
U.S. Department of Treasury Foreign Credit Reporting System, 2003.
For background on the cancellation of the Lavi fighter, see Raviv, Dan & Yossi Melman,
Friends in Deed: Inside the U.S.-Israeli Alliance, New York: Hyperion, 1994, pp. 263-268.
On 21 July 2005, the DSCA notified Congress of a possible Foreign
Military Sale to Israel of a fleet management program for F-15 and
F-16A/B Pratt and Whitney F-100 model engines as well as
associated equipment and services. The total value, if all options are
exercised, could be as high as $600 million.
On 28 April 2005, DSCA notified Congress of a possible Foreign
Military Sale to Israel of 100 GBU-28s (guided bomb units) as well
as associated equipment and services. The total value, if all options
are exercised, could be as high as $30 million.
In April 1998, the United States designated Israel as a “major non-NATO ally,”
which qualifies Israel to receive Excess Defense Articles (EDA) under section 516
of the Foreign Assistance Act and section 23(a) of the Arms Export Control Act.
DSCA manages the EDA program, which enables the U.S. to reduce its inventory of
outdated equipment by providing friendly countries with necessary supplies at either
reduced rates or at no charge. 24
Appropriations for U.S.-Israeli
Congress periodically provides funds from non-foreign aid accounts for joint
U.S.-Israeli research and development (R&D) projects in the defense, agriculture,
science, and hi-tech industries. Israel and the United States benefit from such projects
and share technology from co-developed weapons systems.
Arrow Anti-Missile System. Congress and successive Administrations have
shown strong support for joint U.S.-Israeli missile defense projects. Since 1988,
Israel and the United States have been developing the Arrow Anti-Missile System,
a weapon with a theater ballistic missile defense capability. The United States has
funded just under half of the annual costs of the development of the Arrow Weapon
System, with Israel supplying just over half of the annual costs. H.R. 2863, the
FY2006 Defense Appropriations bill provides $60.25 million for the production of
Arrow missile components in the United States and in Israel. The Administration
had requested $78 million for the program for FY2006. The United States also has
provided $53 million for the Boost Phase Intercept program and $139 million for the
Tactical High Energy Laser program under development in Israel to complement the
To access DSCA’s Excess Defense Articles database, see [http://www.dsca.mil/programs/
Table 5. U.S. Contributions to U.S.-Israel
Arrow Weapons System Development
(figures in millions of U.S. dollars)
U.S.-Israeli Scientific & Business Cooperation
In the early1970s, Israeli academics and businessmen began looking for ways
to expand investment in Israel’s high technology sector. At the time, Israel’s nascent
technology sector, which would later on become the driving force in Israel’s
economy, was in need of private capital for research and development. The United
States and Israel launched several programs to stimulate Israeli industrial and
scientific research, and Congress has on several occasions authorized and
appropriated funds for the following organizations:
The BIRD Foundation (Israel-U.S. Binational Research &
Development Foundation). 25 BIRD, which was established in 1977,
See [http://www.birdf.com/default.asp]. Congress helped establish BIRD’s endowment
provides matchmaking services between Israeli and American
companies in the field of Research and Development with the goal
of expanding cooperation between U.S. and Israeli private high tech
The BSF Foundation (U.S.-Israel Binational Science Foundation). 26
BSF, which was started in 1972, promotes cooperation in scientific
and technological research.
The BARD Foundation (Binational Agriculture and Research and
Development Fund). BARD was created in 1978 and supports U.S.Israeli cooperation in agricultural research. 27
with appropriations of $30 million and $15 million in 1977 and 1985 respectively. These
grants were matched by the Israeli government for a total endowment of $90 million
See [http://www.bsf.org.il/ Gateway3/]. Congress helped establish BSF’s endowment with
appropriations of $30 million and $20 million in 1972 and 1984 respectively. These grants
were matched by Israel for a total endowment of $100 million. According to the treaty
establishing the Foundation, the Foundation shall use the interest, as well as any funds
derived from its activities, for the operations of the Foundation.
See [http://www.bard-isus.com/]. Congress helped establish BARD’s endowment with
appropriations of $40 million and $15 million in 1979 and 1985 respectively. These grants
were matched by the State of Israel for a total endowment of $110 million. In recent years,
Congress has provided funds for BARD in annual Agriculture Appropriations legislation at
approximately $500,000 a year.
Appendix: Recent Aid to Israel
Table 6 shows cumulative U.S. aid to Israel for FY1949 through FY1996, and
U.S. aid to Israel for each fiscal year since. Detail for the years 1949-1996 is shown
in Table 7.
Table 6. Recent U.S. Aid to Israel
(millions of dollars)
Notes: ESF was earmarked for $960 million for FY2000 but was reduced to meet a 0.38%
recision. FY2000 military grants include $1.2 billion for the Wye agreement and $1.92
billion in annual military aid. Final amounts for FY2003 are reduced by 0.65% mandated
recision, and final amounts for FY2004 are reduced by 0.59%.
The $600 million in housing loan guarantees, $5.5 billion in military debt reduction
loan guarantees,$9.2 billion in Soviet Jew resettlement loan guarantees, and $9 billion in
economic recovery loan guarantees are not included in the tables because the United States
government did not transfer funds to Israel. The United States underwrote loans to Israel
from commercial institutions.
Table 7. U.S. Assistance to Israel, FY1949-FY1996
(millions of dollars)
* = less than $50,000
- = None
NA = Not Available
TQ = Transition Quarter, when the U.S. fiscal year changed from June to September.
FFP = Food for Peace
Cooperative Development Grant: Three programs are in the cooperative
development category: Middle East Regional Cooperation (MERC) intended for
projects that foster economic growth and economic cooperation between Israel and
its neighbors; Cooperative Development Program (CDP); and the Cooperative
Development Research (CDR), both of which fund Israel’s foreign aid program.
Israel received about one half of the $94 million MERC, and all of the $53 million
CDP and $39 million CDR.
“Other Loan” is a CCC loan. “Other Grants” are $20 million in 1975 for a seawater
desalting plant and $50 million in 1996 for anti-terrorism.
Definition of Aid: Under the category of foreign aid, some people include other
funds transferred to Israel, such as the $180 million for research and development of
the Arrow missile, or the $7.9 billion in loan guarantees for housing or settling Soviet
Jews in Israel. None of these funds is included in this table.