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Monday, December 28, 2009   E-Mail this story   Free Headline Alerts

TEL AVIV Ñ Israel's government is facing the prospect that President Barack Obama may press for a cut in military aid to the Jewish state while pressing an agenda to boost the U.S. economy

Government sources said Obama advisers have raised the possibility that Israel would offer to forego some of the $2.3 billion in U.S. aid allocated for fiscal 2009. The sources said the advisers said Israel could serve as an example for a comprehensive cut in U.S. foreign aid over the next year.

"The U.S. aid to Israel is already set in law, but there's a problem of Obama looking for money to save the American economy while we're getting our usual allocation," a government source said.

So far, congressional leaders have not formally raised the issue of a unilateral reduction in U.S. military aid to Israel. But the sources said neither the Senate nor the House leadership appeared ready to commit to the same level of U.S. military aid to Israel for fiscal 2010 amid the debate over the $1 trillion package to save the American economy.

The Israel embassy in Washington has sought to portray the U.S. military aid to Israel as a boost to the American economy. Diplomats stressed that 75 percent of U.S. military aid to Israel was required by law to be spent in the United States, thus bolstering the American defense industry.

"Now we have $3 billion in an annual arms package," former Israeli ambassador to Washington, Danny Ayalon, said. "Most of which is referred back to the military industries based in the United States, which serves their economic interests."

Israeli diplomats have also stressed the need for U.S. aid as part of any Middle East peace process. The diplomats pointed to the billions of dollars in U.S. economic and military assistance to cement Israel's peace treaties with Egypt and Jordan.

In 2008, the United States agreed to a 10-year defense package that amounted $30 billion in aid to Israel. The sources said this could be the first target of either the Obama administration or the Democratic-controlled Congress. The administration already plans to cut 10 percent of its defense budget in 2010.

Another target could be $4.5 billion in U.S. loan guarantees provided to Israel. Israel has never used the credits.

"Should the United States face a grave financial problem, the administration could ask for a unilateral cutback in the budget, or postpone the contracts," said Amnon Neubach, a former economic attache at the Israel embassy in Washington. "But that kind of move would not be an anti-Israel one."

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