U.S. Foreign Aid to Israel - Jeremy M. Sharp Specialist in Middle Eastern Affairs

U.S. Foreign Aid to Israel - Jeremy M. Sharp Specialist in Middle Eastern Affairs

U.S. Foreign Aid to Israel - Jeremy M. Sharp Specialist in Middle Eastern Affairs

CRS Report for Congress Prepared for Members and Committees of Congress U.S. Foreign Aid to Israel Jeremy M. Sharp Specialist in Middle Eastern Affairs March 12, 2012 Congressional Research Service 7-5700 www.crs.gov RL33222

U.S. Foreign Aid to Israel - Jeremy M. Sharp Specialist in Middle Eastern Affairs

U.S. Foreign Aid to Israel Congressional Research Service Summary This report provides an overview of U.S. foreign assistance to Israel. It includes a review of past aid programs, data on annual assistance, and an analysis of current issues. For general information on Israel, see CRS Report RL33476, Israel: Background and U.S. Relations, by Jim Zanotti.

Israel is the largest cumulative recipient of U.S. foreign assistance since World War II. To date, the United States has provided Israel $115 billion in bilateral assistance. Almost all U.S. bilateral aid to Israel is in the form of military assistance, although in the past Israel also received significant economic assistance. Strong congressional support for Israel has resulted in Israel receiving benefits not available to any other countries; for example, Israel can use some 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. assistance earmarked for Israel is delivered in the first 30 days of the fiscal year, while most other recipients normally receive aid in installments. In addition to receiving U.S. State Department-administered foreign assistance, Israel also receives funds from annual defense appropriations bills for joint U.S.-Israeli missile defense programs.

In 2007, the Bush Administration and the Israeli government agreed to a 10-year, $30 billion military aid package that gradually will raise Israel’s annual Foreign Military Financing grant from a baseline of nearly $2.55 billion in FY2009 to approximately $3.1 billion for FY2013 through FY2018. For FY2013, the Obama Administration is requesting $3.1 billion in FMF to Israel. In the second session of the 112th Congress, in addition to the normal foreign operations appropriations process, lawmakers may address: Administration or Israeli requests for additional defense appropriations for joint U.S.-Israeli missile defense; an extension of U.S.

loan guarantees to Israel beyond FY2012 when they are set to expire; and new funding for joint U.S.-Israeli scientific research.

The Obama Administration’s FY2013 request includes $3.1 billion in Foreign Military Financing for Israel and $15 million for refugee resettlement. Within the U.S. Department of Defense, the U.S. Missile Defense Agency’s FY2013 budget request includes $99.8 million in joint U.S.- Israeli co-development for missile defense. On March 5, 2012, House lawmakers introduced H.R. 4133, the United States-Israel Enhanced Security Cooperation Act of 2012. If passed, this bill would, among other things, allocate additional weaponry and munitions for the forward-deployed United States stockpile in Israel; provide Israel additional surplus defense articles and defense services, as appropriate, in the wake of the withdrawal of United States forces from Iraq; expand Israel's authority to make purchases under the Foreign Military Financing program on a commercial basis; encourage an expanded role for Israel within the North Atlantic Treaty Organization (NATO), including an enhanced presence at NATO headquarters and exercises; support extension of the long-standing loan guarantee program for Israel, recognizing Israel's unbroken record of repaying its loans on time and in full; and require the President to submit a report on the status of Israel's qualitative military edge in light of current trends and instability in the region.

U.S. Foreign Aid to Israel Congressional Research Service Contents Overview ___ 1
A Changing Fiscal Landscape: Aid and U.S. Deficit Reduction ___ 2
Qualitative Military Edge (QME ___ 4
The Costs and Benefits of Israeli Dependence on U.S. Weaponry ___ 5
U.S. Bilateral Military Aid to Israel ___ 5
The 10-Year Military Aid Agreement ___ 5
Foreign Military Financing (FMF) and Arms Sales ___ 6
Early Transfer ___ 6
FMF for in-Country Purchase ___ 6
F-35 Joint Strike Fighter ___ 7
Bunker Buster Bombs ___ 8
Excess Defense Articles ___ 8
Defense Budget Appropriations for U.S.-Israeli Missile Defense Programs ___ 8
Multi-Tiered Missile Defense ___ 9
Iron Dome ___ 10
David’s Sling ___ 13
The Arrow and Arrow II ___ 13
High Altitude Missile Defense System (Arrow-III ___ 14
X-Band Radar ___ 14
Emergency U.S.

Stockpile in Israel ___ 15
Aid Restrictions and Possible Violations ___ 16
Cluster Munitions ___ 16
Israeli Arms Transfers to Third Parties ___ 17
Other Ongoing Assistance and Cooperative Programs ___ 20
Migration & Refugee Assistance ___ 20
Loan Guarantees ___ 21
Overview ___ 21
Loan Guarantees for Economic Recovery ___ 21
American Schools and Hospitals Abroad Program (ASHA ___ 24
U.S.-Israeli Scientific & Business Cooperation ___ 25
Figures Figure 1. Ranges of Rockets Fired from the Gaza Strip ___ 10
Figure 2. Iron Dome Battery ___ 12
Tables Table 1.

Defense Budget Appropriations for U.S.-Israeli Missile Defense: FY2006- FY2012 ___ 15
Table 2. Migration and Refugee Assistance Funding Levels . 20

U.S. Foreign Aid to Israel Congressional Research Service Table 3. U.S. Loan Guarantees to Israel: FY2003-FY2011 ___ 23
Table 4. ASHA Program Grants from Israel Account, FY2000-FY2011 ___ 24
Table B-1. Recent U.S. Bilateral Aid to Israel ___ 30
Table B-2. U.S. Assistance to Israel, FY1949-FY1996 ___ 31
Appendixes Appendix A. Historical Background ___ 27
Appendix B. Bilateral Aid to Israel ___ 30
Contacts Author Contact Information . 34

U.S. Foreign Aid to Israel Congressional Research Service 1 Overview For decades, the United States and Israel have maintained strong bilateral relations based on a number of factors, including robust domestic U.S.

support for Israel and its security; shared strategic goals in the Middle East; a mutual commitment to democratic values; and historical ties dating from U.S. support for the creation of Israel in 1948. U.S. foreign aid has been a major component in cementing and reinforcing these ties. Although successive Administrations have disapproved of some Israeli policies, including settlement construction in the West Bank and— prior to Israel’s 2005 disengagement—the Gaza Strip, U.S. officials and many lawmakers have long considered Israel to be a reliable partner in the region, and U.S. aid packages for Israel have reflected this belief.

Opponents of U.S. aid to Israel argue that U.S. assistance to Israel indirectly causes suffering to Palestinians by supporting Israeli arms purchases and by blunting international pressure on Israel to reach a solution to the Palestinian conflict.

Though aid to Israel has both supporters and detractors, overall U.S. public support for Israel remains strong. According to a February 2011 Gallup poll that measured Americans' sympathies toward the disputants in the Israeli-Palestinian conflict, a near record-high 63% said their sympathies lie more with the Israelis.1 There is less specific public polling data on support for aid to Israel. Overall, American public support for all foreign aid programs is declining. According to a January 2011 Gallup poll, 59% of Americans favored cutting foreign aid. According to a February 2011 poll conducted by the Israel Project, a non-profit educational organization that aims to portray a positive view of Israel, when asked if the United States should continue foreign aid to Israel used for buying U.S.

military equipment, 47% of respondents responded affirmatively and 40% of respondents said that the United States should reduce aid to Israel.2 The historic political changes occurring in the Arab world and the ongoing security challenges posed by Iran and its allies may affect the U.S.-Israeli aid relationship in varying ways. Some U.S. leaders perceive increasing threats to Israel, particularly from Iran and its Lebanese Shiite ally Hezbollah, and therefore may advocate for additional funding for programs such as short and long range missile defense. Others, who may also strongly support Israel’s security, also may see an opportunity for Israel to respond to empowered public opinion in neighboring Arab countries like Egypt through diplomatic means, especially by reenergizing peace initiatives with the Palestinians, and therefore may seek aid packages that offer incentives for this behavior.3 The wave of continued Arab unrest may even cause Israel to advocate for more global financial support for its Arab neighbors.

Fear of unrest in neighboring Jordan, for example, could drive Israel to seek additional U.S. foreign assistance in support of the neighboring Arab monarchy. 1 Lydia Saad, “Americans Maintain Broad Support for Israel,” Gallup, February 28, 2011. 2 The national survey of 1,000 likely voters was conducted by Greenberg Quinlan Rosner February 7-9, 2011. Available online at: http://www.theisraelproject.org/atf/cf/%7B84dc5887-741e-4056-8d91-a389164bc 94e%7D/2011- 02USNATIONALADD-ONSPRESENTATION-HILLVISITS.PDF.

3 In October 2011, U.S. Secretary of Defense Leon Panetta stated that while Israel is powerful, “Is it enough to maintain a military edge if you’re isolating yourself in the diplomatic arena . Real security can only be achieved by both a strong diplomatic effort as well as a strong effort to project your military strength.” See, “Panetta Says Israel Is Risking Isolation,” New York Times, October 3, 2011.

U.S. Foreign Aid to Israel Congressional Research Service 2 A Changing Fiscal Landscape: Aid and U.S. Deficit Reduction U.S. lawmakers continue to grapple with varied plans for reducing the nation’s $15.2 trillion federal debt.

Some lawmakers see foreign affairs funds, particularly for foreign aid programs, as expenditures that can be cut in order to reduce the deficit; indeed, some Members of Congress have called for phasing out foreign assistance entirely. Though many leaders have exempted aid to Israel from such plans, general opposition to U.S. foreign aid has caused some Israel advocates concern. In March 2011, the American Israel Public Affairs Committee (AIPAC) published a memorandum asserting that foreign aid is “an essential component of America’s national security strategy.” 4 In August 2011, Congress passed the Budget Control Act of 2011 (BCA), P.L.

112-25, intended to reduce the federal deficit by at least $2.1 trillion over the FY2012-FY2021 period. On November 21, 2011, the co-chairs of the Joint Select Committee on Deficit Reduction established by this Act to identify the necessary savings announced that they were unable to reach agreement on a package of cuts. As a result, a $1.2 trillion automatic spending reduction process (i.e., a combination of sequestration and lower discretionary spending caps) has been triggered, to begin in January 2013 unless Congress and the President act to eliminate or change the process before then.5 For FY2013 only, P.L.

112-25 requires a sequestration—a largely across-the-board cut—of both discretionary and mandatory spending. The across-the-board cuts are applied to each non-exempt account, and to each program, project, and activity within each non-exempt account (as required by Section 256(k) of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the BCA).

Congress intended the 1985 law (P.L. 99-177), otherwise known as Gramm-Rudman-Hollings named after its cosponsors, to apply across-the-board cuts to all accounts, including U.S. aid to Israel. Gramm-Rudman-Hollings enacted a process of sequestration for FY1986 and beyond. That year all foreign aid accounts, including Israel’s, were cut by 4.3%. Because Israel’s aid is usually disbursed within 30 days of the enactment of the foreign operations appropriations bill and because Gramm-Rudman-Hollings was passed in December 1985, the government of Israel ended up “voluntarily” returning a total of $128.6 million in FY1986 economic ($51.6 million ) and military aid ($77 million) to the United States Treasury.

6 Currently, if the 2011 BCA (P.L. 112-25) is not amended, the Congressional Budget Office has estimated that the sequestration for FY2013 will require across-the-board cuts of about 8.5% in most discretionary spending accounts, including foreign aid programs.7 Under this scenario, if aid to Israel is not exempted, it would be reduced in FY2013 by roughly $263.5 million. However, 4 http://www.aipac.org/~/media/Publications/Policy%20and%20Politics/AIPAC%20A nalyses/Issue%20Memos/2011/0 3/AIPAC_Memo_Foreign_Aid_Keeps_America_Safe_Strong_and_Prosperous.pdf.

5 See, CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan. 6 See, “Israel may not Suffer as Much as Other Nations from Painful Budget Cuts,” Washington Post, January 15, 1986. 7 CBO, The Budget and Economic Outlook: FY2012 to FY2022, pp. 12-13.

U.S. Foreign Aid to Israel Congressional Research Service 3 many lawmakers have publicly opposed cuts in aid to Israel. For FY2014 to FY2021, the Budget Control Act of 2011 does not mandate across-the-board cuts to discretionary spending. Instead, it reduces discretionary spending cap levels broadly, leaving it to Congress and the Administration to decide which programs, projects, and activities would be fully funded or not.

Although it is too early to predict which countries or functional accounts may be affected by possible aid reductions, the anticipation of changes to aid levels may spur diplomatic negotiations with Israel over future assistance. For example, it is possible that Israel, which receives approximately 60% of all U.S. Foreign Military Financing (FMF) and is the second-largest recipient of total U.S. aid worldwide (Afghanistan is the largest recipient), may promote more U.S.-Israeli cooperative programs in the future in order to place the U.S.-Israeli aid relationship on more equal footing. In the mid 1990s, amidst earlier efforts in Congress to reduce foreign aid funding, Israel proposed (and Congress agreed) to phase out U.S.

economic aid to Israel entirely. The growth of the Israeli economy had apparently obviated the need for future U.S. economic grant aid. Under the terms of the current U.S.-Israel Memorandum of Understanding on assistance, both parties have agreed upon military aid levels through FY2018. In the years ahead, it is possible that both parties may attempt to restructure U.S. assistance without jeopardizing U.S. efforts to maintain Israel’s qualitative military edge (QME—see below). On the other hand, the U.S. aid program to Israel may also continue without restructuring due to broad public support and the continued need to counter emerging threats in the region.

In November 2011, Assistant Secretary of State for Political-Military Affairs Andrew J. Shapiro publicly reaffirmed the Obama Administration’s commitment to preserving Israel’s aid and QME. In his remarks, he stated: But today, in these budget constrained times—some are now asking the question why should we keep providing aid to Israel? Yes, Israel is a long time democratic ally and we share a special bond—but some skeptics are questioning whether that’s enough of a reason to continue to spend hard earned American tax payer dollars on Israel’s security. I can answer that skepticism directly—we don’t just support Israel because of a long standing bond, we support Israel because it is in our national interests to do so.

This aspect of our relationship with Israel is often overlooked. America’s commitment to Israel’s security and prosperity has extended over many decades because our leaders on both sides of the aisle have long understood that a robust United States-Israel security relationship is in our interests. Our support for Israel’s security helps preserve peace and stability in the region. If Israel were weaker, its enemies would be bolder. This would make broader conflict more likely, which would be catastrophic to American interests in the region. It is the very strength of Israel’s military which deters potential aggressors and helps foster peace and stability.

Ensuring Israel’s military strength and its superiority in the region is therefore critical to regional stability and as a result is fundamentally a core interest of the United States.8 8 “Ensuring Israel's Qualitative Military Edge,” Remarks by Andrew J. Shapiro, Assistant Secretary, Bureau of Political-Military Affairs, Remarks to The Washington Institute for Near East Policy, Washington, DC, November 4, 2011.

U.S. Foreign Aid to Israel Congressional Research Service 4 Qualitative Military Edge (QME) Almost all U.S. aid to Israel is in the form of military assistance.9 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 military edge” (QME) 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 build a domestic defense industry, which ranks as one of the top 10 suppliers of arms worldwide.

Successive administrations have routinely affirmed the U.S. commitment to strengthening Israel’s QME. For years, no official or public U.S. definition of QME existed.10 In 2008, Congress passed legislation (P.L. 110-429, the Naval Vessel Transfer Act of 2008) that defines QME as: the ability to counter and defeat any credible conventional military threat fromany individual state or possible coalition of states or from non-state actors, while sustaining minimal damage and casualties, through the use of superior military means, possessed in sufficient quantity, including weapons, command, control, communication, intelligence, surveillance, and reconnaissance capabilities that in their technical characteristics are superior in capability to those of such other individual or possible coalition of states or non-state actors.

Furthermore, Section 201 of the act requires the President to carry out an “empirical and qualitative assessment on an ongoing basis of the extent to which Israel possesses a qualitative military edge over military threats to Israel.” It also further amends Section 36 of the Arms Export Control Act to require certifications for proposed arms sales “to any country in the Middle East other than Israel” to include “a determination that the sale or export of the defense articles or defense services will not adversely affect Israel’s qualitative military edge over military threats to Israel.” Over the years, Israeli officials have expressed concern over U.S.

sales of sophisticated weaponry, particularly aircraft, airborne radar systems, and precision-guided munitions, to Arab Gulf countries, notably Saudi Arabia. Arab critics of U.S. military aid to Israel routinely charge that Israeli officials exaggerate the threat posed by Israel’s neighbors in order to justify calls for increased U.S. support. As the United States is one of the principal suppliers of defense equipment and training to both Israel and Saudi Arabia, U.S. policymakers and defense officials must carefully navigate commitments to the two countries, including upholding the U.S. commitment to maintaining Israel’s QME.

The threat of a nuclear-armed Iran, though it has partially aligned Israeli and Sunni Arab interests in deterring a shared rival, also may be exacerbating Israeli fears of a deteriorated QME as Saudi Arabia and other Gulf states dramatically increase defense procurements from U.S. and other foreign suppliers to respond to the challenge from Iran they perceive.

9 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. Consequently, Israel and the United States agreed to gradually phase out economic grant aid to Israel. In FY2008, Israel stopped receiving bilateral Economic Support Fund (ESF) grants. It had been a large-scale recipient of grant ESF assistance since 1971.

10 William Wunderle and Andre Briere, U.S. Foreign Policy and Israel’s Qualitative Military Edge: The Need for a Common Vision, Washington Institute for Near East Policy, Policy Focus #80, January 2008.

U.S. Foreign Aid to Israel Congressional Research Service 5 Since the passage of P.L. 110-429, the United States and Israel established a bilateral QME working group in which Israel can advocate against proposed U.S. sales to Arab states it believes adversely affects its QME.11 The Costs and Benefits of Israeli Dependence on U.S. Weaponry Although many U.S. and Israeli officials consider military aid a key component of the overall U.S.-Israeli relationship, some Israelis believe that the aid relationship creates too much dependence on the United States.12 Overall, Israel greatly relies on advanced U.S.

weaponry to maintain its conventional superiority. For the most part, Israelis say that their dependence on American equipment has been beneficial, though at times, some Israelis (like many other foreign recipients of U.S. aid), have expressed concern that U.S. military aid comes with conditions. For example, the United States effectively maintains veto power over certain sales by Israel (or any other country that buys U.S. equipment) to third parties of defense equipment that may contain U.S. technology (see “Aid Restrictions and Possible Violations”). In contrast to the limited conditions on U.S.

military aid that some Israelis see as a concern, some other foreign suppliers have at times used arms sales as leverage in attempting to pressure Israel, particularly on the Palestinian issue. In 2011, German Chancellor Angela Merkel reportedly threatened to cancel the sale of a Dolphin-class submarine unless Israel released Palestinian Authority tax revenue it had been withholding in protest of Palestinian attempts to seek membership at the United Nations.13 Other reports suggested that Germany had been reconsidering the deal due to Israeli plans to construct 1,100 housing units in East Jerusalem.

Germany ultimately agreed to sell Israel the submarine at a discounted cost. U.S. Bilateral Military Aid to Israel The 10-Year Military Aid Agreement In 2007, the Bush Administration and the Israeli government agreed to a 10-year, $30 billion military aid package that gradually would raise Israel’s annual Foreign Military Financing grant from a baseline of nearly $2.55 billion in FY2009 to approximately $3.1 billion for FY2013 through FY2018. Under the terms of the agreement, Israel will still be able to spend up to 26.3% of U.S. assistance on Israeli-manufactured equipment (known as Off-Shore Procurement or OSP).

The agreement states that “Both sides acknowledge that these funding levels assume continuation of adequate levels for U.S. foreign assistance overall, and are subject to the appropriation and availability of funds for these purposes.”14 According to former Under Secretary of State for Political Affairs Nicholas Burns, who signed the Memorandum of Understanding on U.S. Military Assistance: 11 "Israeli Brass Decry U.S. Arms Sales To Arab States," Defense News, January 23, 2012. 12 For a more detailed discussion see, Haim Malka, Crossroads: The Future of the U.S.-Israel Strategic Partnership, Center for Strategic and International Studies, Washington, D.C.

2011, pp-89-94. 13 "'Israel released PA funds under German pressure'," Jerusalem Post, December 5, 2011. 14 United States-Israel Memorandum of Understanding, Signed by then U.S. Undersecretary of State R. Nicholas Burns and Israeli Ministry of Foreign Affairs Director General Aaron Abramovich, August 16, 2007.

U.S. Foreign Aid to Israel Congressional Research Service 6 We consider this 30 billion dollars in assistance to Israel to be an investment in peace - in long-term peace. Peace will not be made without strength. Peace will not be made without Israel being strong in the future. Of course, our objective as a country and our specific objective as a government is to contribute to that peace, a peace between Israel and the Palestinian people, the creation of an independent Palestinian state willing to live side by side in peace with Israel, and a general peace in the region that has eluded the Israeli people for 59 years but which is, we hope, the destiny of the Israeli people as well as the Arab peoples of the region.

Our policy in this entire region is dedicated to that final objective.15 Foreign Military Financing (FMF) and Arms Sales Israel is the largest recipient of U.S. Foreign Military Financing. In FY2012, Israel’s portion of the total FMF account appropriated in P.L. 112-74, the Consolidated Appropriations Act, 2012, was 60%.16 Annual FMF grants to Israel represent 18% to 22% of the overall Israeli defense budget.17 Early Transfer For years, Congress has mandated that Israel receive its FMF aid in a lump sum during the first month of the fiscal year. The FY2012 Consolidated Appropriations Act (P.L.

112-74) states that “the funds appropriated under this heading for assistance for Israel shall be disbursed within 30 days of enactment of this Act.” 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 $538.7 million as of March 31, 2011.18 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 in Israel to be a valuable aspect of its assistance package; no other recipient of U.S.

military assistance has been granted this benefit.19 Since FY1988, the FMF procurement earmark for purchases within Israel has been incorporated into annual foreign assistance legislation. 15 R. Nicholas Burns, Under Secretary of State for Political Affairs, “Remarks and Press Availability at Signing Ceremony for Memorandum of Understanding on U.S. Military Assistance,” Released by the American Embassy Tel Aviv—Press Section, August 16, 2007.

16 This percentage excludes Overseas Contingency Operations (OCO). 17 “Highlights: Israel Economy News 14-20 Jun 09 (Israel—OSC Summary in English),” Open Source Center, June 20, 2009, GMP20090620739005. 18 CRS correspondence with U.S. Treasury Department. 19 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. 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. For background on the cancellation of the Lavi fighter, see Dan Raviv and Yossi Melman, Friends in Deed: Inside the U.S.-Israeli Alliance, New York: Hyperion, 1994, pp. 263-268.

U.S. Foreign Aid to Israel Congressional Research Service 7 Currently, approximately 26.3% of Israel’s FMF funds may be used for domestic defense purchases ($808.7 million in FY2012). Since the earmark is linked to a percentage and not a specific dollar amount, as U.S. military aid to Israel has increased, the amount set aside for defense purchases in Israel also has increased. Successive Administrations and many lawmakers believe that a strong domestic Israeli defense industry is crucial to maintaining Israel’s technological edge over its neighbors. The proceeds to Israeli defense firms20 from purchases with U.S.

funds have allowed the Israeli defense industry to achieve necessary economies of scale and produce highly sophisticated equipment for niche markets. Defense experts note that high annual amounts of U.S. military assistance force private and semi-private Israeli defense companies to place a greater business emphasis on exports, since a large portion of Israeli government weapons procurement is spent on American equipment. According to Beth McCormick, former acting director of the U.S. Defense Technology Security Administration, Israeli manufacturers must sell as much as 75% of their output abroad to stay profitable, a far higher share than U.S.

military contractors.21 Israel is among the world’s leading arms exporters. Between 2003 and 2010, Israel was the eighth-largest arms exporter in the world with sales (value of agreements not deliveries) worth a total of $12 billion.22 F-35 Joint Strike Fighter After years of negotiations, the United States and Israel announced in 2010 that Israel will purchase 19 F-35s, the fifth-generation stealth aircraft considered to be the most technologicallyadvanced fighter jet ever made, at a cost of $2.75 billion. They will be paid for entirely using FMF grants.23 Israel may purchase additional squadrons of F-35s in the future and has received U.S.

approval to purchase up to 75 aircraft.24 Prior to the agreement, the two sides had negotiated over the level of Israeli customization of the F-35. Reportedly, a June 2010 Letter of Acceptance indicated that Israel will be able to install its own radio and datalink systems, and discussions over the integration of electronic warfare capabilities will continue and may be approved should Israel purchase additional planes.25 As part of the F-35 deal, the United States agreed to make reciprocal purchases of equipment from Israel’s defense industries estimated at $4 billion.26 Due to delays in the overall F-35 program, the expected delivery of the aircraft to Israel has been delayed.

In the meantime, without the advanced fighters, Israel may choose to upgrade its existing F-15 or F-16 fighters.

20 The primary state-owned and private Israeli defense contractors are Israel Aerospace Industries Ltd (IAI), Elbit Systems Ltd, Rafael Ltd (Rafael Advanced Defence Systems Ltd), Elisra Group, and Israel Military Industries (IMI). 21 “Pentagon says Israel Improves Arms-Export Controls,” Reuters, September 5, 2007. 22 CRS Report R42017, Conventional Arms Transfers to Developing Nations, 2003-2010, by Richard F. Grimmett. 23 In 2010, During intense Obama Administration negotiations with the Israeli government over a possible Israeli settlement freeze in the West Bank, the Administration had reportedly offered Israel, among other things, 20 additional F-35s in exchange for a 90-day moratorium on settlement construction.

24 DSCA’s notification to Congress of the F-35 sale is available online at: http://www.dsca.mil/PressReleases/36- b/2008/Israel_08-83.pdf. 25 “Defense Minister Barak approves purchase of 20 F-35 fighters for around $2.75 billion,” Ha'aretz, August 16, 2010. 26 “Israel set to build wings for some 800 F-35s,” Reuters, August 30, 2010.

U.S. Foreign Aid to Israel Congressional Research Service 8 Bunker Buster Bombs Over the past several years, the United States has sold Israel several variants of smart, “bunkerbuster” bombs that could be used to strike buried targets, including the GBU-28 Hard Target Penetrator, a 5,000 pound-class smart bomb that can penetrate up to 20 feet of concrete.

Congress was first notified of the GBU-28 sale in 2005. The GBU-28 was first used in the 1991 Gulf war, and Israel had sought the munitions since the late 1990s. In 2008, the United States authorized Israel to receive the GBU-39 Small Diameter Bomb, a 250-pound class weapon that can penetrate three to six feet of concrete. Israel was the first customer outside of the United States to receive the GBU-39.27 However, according to one report, the GBU-28 and GBU-39 may not have sufficient strike capacity to damage Iranian underground nuclear targets such as the Fordow uranium enrichment plant (near the city of Qom), which is reportedly buried nearly 250 feet inside a mountain.28 Excess Defense Articles The Excess Defense Articles (EDA) program provides one means by which the United States can advance foreign policy objectives—assisting friendly and allied nations through provision of equipment in excess of the requirements of its own defense forces.

According to the Defense Security Cooperation Agency (DSCA), Israel continues to be the largest single recipient of EDA material.29 From 2001 to the present, Israel has been authorized over $330 million in EDA. 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.30 Defense Budget Appropriations for U.S.-Israeli Missile Defense Programs Congress and successive Administrations have demonstrated strong support for joint U.S.-Israeli missile defense projects designed to thwart a diverse range of threats, from short-range missiles and rockets fired by non-state actors, such as Hamas and Hezbollah, to midand longer-range ballistic missiles in Syria’s and Iran’s arsenals.

U.S.-Israeli missile defense cooperation has perennially been authorized and appropriated in the defense authorization and appropriations bills. Such efforts generally are not considered a form of direct aid, but many U.S. and Israeli observers consider them a vital component of Israel’s strategic relationship with the United States. Israel and the United States each financially contribute to several projects and share technology from co-developed weapons systems.

27 DSCA’s notification to Congress of the GBU-39 is available online at: http://www.dsca.mil/PressReleases/36- b/2008/Israel_08-82.pdf. 28 "ANALYSIS-Iran nuclear sites may be beyond reach of ‘bunker busters’," Reuters, January 12, 2012. 29 DSCA Israel Country Information Paper. 30 To access DSCA’s Excess Defense Articles database, see http://www.dsca.mil/programs/eda/search.asp.

U.S. Foreign Aid to Israel Congressional Research Service 9 The Department of Defense, Missile Defense Agency’s FY2013 request for joint U.S.-Israeli codevelopment is $99.8 million which is $6 million below the President’s FY2012 request.

However, according to one source, “Though the administration’s request for missile defense monies has dropped somewhat in recent years—from $121.7m. in 2011 to $106.1m. in 2012 to 2013’s $99.8m.—during each of those cycles, Congress has consistently increased the final allocation.”31 Multi-Tiered Missile Defense In addition to U.S.-supplied Hawk and Patriot missile batteries, in the past several years U.S.- Israeli missile defense cooperation has evolved to include the co-development of several systems. Israel also has developed its own missile defense programs without U.S. collaboration. 31 "Congress Ready To Increase Israel Defense Funding," Jerusalem Post, February 15, 2012.

U.S. Foreign Aid to Israel Congressional Research Service 10 Figure 1. Ranges of Rockets Fired from the Gaza Strip Source: Open Source Center, 'Nonstop Barrage' of Rockets Continues, No Israelis Hurt; Mortar Hits Gaza Truck, Document ID# GMP20120312739003 Israel—OSC Summary in English, March 12, 2012. Note: Although the graphic refers exclusively to Hamas, other Palestinian groups, such as the Popular Resistance Committees (PRC) and Islamic Jihad, have fired rockets into Israel. Iron Dome The United States has helped defray the cost of Israel’s domestically-developed short-range antirocket system, dubbed “Iron Dome.” Iron Dome is designed to intercept very short-range threats between 2.5 and 45 miles in all weather situations.

It was developed by Rafael Advanced Defense Systems. Development of Iron Dome began in February 2007. In response to Palestinian rocket

U.S. Foreign Aid to Israel Congressional Research Service 11 attacks from Gaza, Israel deployed Iron Dome batteries for the first time in April, August, and October 2011 to protect the cities of Ashdod, Beersheba, and Ashkelon. Each battery costs approximately $50 million.32 Many observers have praised the system’s performance. According to one report, Iron Dome interceptors succeeded 70% of the time they were fired in destroying incoming projectiles.33 The Israeli military discovered that a radar failure had caused some of the misses and have since resolved the malfunction.

However, Israeli leaders have cautioned that rocket and missile defense systems are not capable of fully protecting Israeli population centers in the event of intensified, sustained attacks from its enemies.

The Iron Dome system is not designed to protect against very short range projectiles due to their abbreviated flight times, leaving towns in the immediate vicinity of the Gaza border— such as Sderot (estimated population: 21,000)—more vulnerable. The Israeli military plans to deploy nine Iron Dome batteries34 across the country by 2013. It believes it requires a total of between 10-15 batteries to adequately protect most urban areas. Israel is reportedly considering exporting the system to customers in Asia (such as South Korea, Singapore, and India) in order to recoup Iron Dome’s cost.

32 CRS conversations with Israeli officials, April 2011. According to these same conversations, each Iron Dome interceptor projectile costs between $80,000 and $90,000. 33 “Iron Dome hits 70% of militant rockets,” Jane’s Defence Weekly, January 6, 2012. 34 Each Iron Dome battery contains three launchers each equipped with 20 Tamir interceptor missiles. See “Rafael and Raytheon collaborate on Iron Dome project,” Jane’s Defence Weekly, August 17, 2011; “Iron Dome anti-rocket system was never meant to protect Israeli towns,” Ha’aretz, December 21, 2010.

U.S.

Foreign Aid to Israel Congressional Research Service 12 Figure 2. Iron Dome Battery Source: Jane’s Defence Weekly In March 2010, the Obama Administration announced that it would support $205 million in defense assistance to Israel for the purchase of up to ten Iron Dome batteries. Section 229 of P.L. 111-383 (Ike Skelton National Defense Authorization Act for Fiscal Year 2011) authorized the Secretary of Defense to provide that sum to the government of Israel for the Iron Dome system.35 Section 8072 of P.L. 112-10 (Department of Defense and Full-Year Continuing Appropriations Act, 2011) appropriated the $205 million in funding for Iron Dome, along with additional funding to support the other components of U.S.

missile defense cooperation with Israel. For FY2012, the Administration did not request specific funding for Iron Dome, and Congress has not appropriated funds for it.

35 In the 111th Congress, the House passed H.R. 5327, United States-Israel Rocket and Missile Defense Cooperation and Support Act, which authorized the Administration “to provide assistance to the Government of Israel for the procurement, maintenance, and sustainment of the Iron Dome Short Range Artillery Rocket Defense System for purposes of intercepting short-range rockets, missiles, and mortars launched against Israel.” A Senate version, S. 3451, was referred to the Senate Foreign Relations Committee but was not reported out during the 111th Congress.

U.S.

Foreign Aid to Israel Congressional Research Service 13 David’s Sling In August 2008, Israel and the United States officially signed a “project agreement” to co-develop the David’s Sling system. David’s Sling (aka Magic Wand) is a short/medium-range system designed to counter long-range rockets and slower-flying cruise missiles fired at ranges from 40 km to 300 km, such as those possessed by Hezbollah in Lebanon, as well as by Syria and Iran. David’s Sling is designed to intercept missiles that fall below the optimal capability for Israel’s Arrow ballistic missile interceptor. It is being jointly developed by Israel’s Rafael Advanced Defense Systems and U.S.-based Raytheon.

David’s Sling uses Raytheon’s Stunner missile for interception, and each launcher can hold up to 16 missiles. The system is expected to be operational by the end of 2012. According to Lt. Gen. Henry Obering, director of the U.S. Missile Defense Agency, “We wanted a truly co-managed program because the United States will be very interested in this for our own purposes... The agreement we just signed allows us to work through specific cost-sharing arrangements and other program parameters.”36 Once deployed, David’s Sling could replace U.S.-supplied Hawk surface-to-air missiles that have been used by Israel for nearly half a century.

The Arrow and Arrow II Since 1988, Israel and the United States have been jointly 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 the remainder. The Arrow II program, a joint effort of Boeing and Israel Aerospace Industries (IAI), is designed to defeat longer-range ballistic missiles. One Arrow II battery can protect major areas of Israeli territory.

Shortly after the start of the Strategic Defense Initiative (SDI) in 1985, the Reagan Administration sought allied political support through various cooperative technology agreements on ballistic missile defense (BMD).

An MOU was signed with Israel on May 6, 1986 to jointly develop an indigenous Israeli capability to defend against ballistic missiles.37 Israeli interest in BMD was strengthened by the missile war between Iran and Iraq in the later 1980s, and the experience of being attacked by Scud missiles from Iraq during Operation Desert Storm in 1991. Under the 1986 agreement allowing Israel to participate in SDI, the United States and Israel have co-developed different versions of the Arrow anti-ballistic missile. The total U.S. financial contribution so far exceeds $1 billion. The system became operational in 2000 in Israel and has been tested successfully.

The Defense Department’s Missile Defense Agency has agreed to extend the U.S.-Israel Arrow System Improvement Program (ASIP) and post-ASIP through 2013. Since 2001, Israel and the United States have conducted a joint biennial exercise, called Juniper Cobra, to work on integrating their weapons, radars, and other systems.

36 “U.S.-Israel To Develop David’s Sling Missile Defense,” DefenseNews.com, August 7, 2008. 37 Subsequently, a number of additional agreements were signed, including, for example: an April 1989 Memorandum of Agreement (MOA) to develop an Israeli computer facility as part of the Arrow BMD program, a June 1991 agreement to develop a second generation Arrow BMD capability, and a September 2008 agreement to develop a shortrange BMD system to defend against very short-range missiles and rockets.

U.S. Foreign Aid to Israel Congressional Research Service 14 High Altitude Missile Defense System (Arrow-III) Fearing a potential nuclear threat from Iran, Israel has sought a missile interceptor that operates at a higher altitude and greater range than the Arrow.

In October 2007, the United States and Israel agreed to establish a committee to evaluate Israel’s proposed “Arrow III,” a top-tier system designed to intercept medium-range ballistic missiles. The Arrow III will be a more advanced version—in terms of speed, range and altitude—of the current Arrow II interceptor. In the spring and summer of 2008, Israel decided to begin production of the Arrow III and the United States agreed to co-fund its development despite an initial proposal by Lockheed Martin and the Department of Defense urging Israel to purchase the Terminal High-Altitude Area Defense (THAAD) missile defense system instead.

The Arrow III, made by Israel Aerospace Industries (IAI) and Boeing, is expected to be deployed by 2014. In July 2010, the United States and Israel signed a bilateral agreement to extend their cooperation in developing and producing the Arrow III.

X-Band Radar One of the most significant gestures of U.S. support for Israel’s missile defense architecture has been the deployment of the AN/TPY-2 X-Band radar system (built by Raytheon Co.) to Israel in late 2008. Not only is the X-Band system far more capable of detecting incoming missiles than Israel’s existing radar,38 but the United States also has linked the X-Band to its global network of satellites in the U.S. Defense Support Program (DSP) and to the global U.S. Ballistic Missile Defense System (BMDS). The DSP is the principal component of the U.S. Satellite Early Warning System to detect missile launches.39 According to various media reports, the X-Band system is now operational.

It will remain U.S.-owned and is operated by U.S. troops and defense contractors—the first indefinite U.S. military presence to be established on Israeli soil. Reportedly, the system has been deployed to a secret location in the southern Negev desert. P.L. 110-417, the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, authorized up to $89 million for the activation and deployment of the AN/TPY-2 forward-based X-band radar to a “classified location.”40 According to Section 236 of the act, this funding was contingent on a report from the Secretary of Defense to the Committees on Armed Services of the Senate and the House of Representatives.

The report was to describe, among other things, the Xband radar’s proposed location; the operational parameters of the deployment of the radar; and the cost-sharing arrangements between the United States and the country in which the radar was to be deployed.

38 The X-Band system can detect incoming missiles from 500-600 miles. Currently, Israel’s early warning system is only able to detect missiles from 100 miles out. 39 Israel was first given access to DSP in 2001 but only on a per-request, rather than constant, basis. 40 In report language (H.Rept. 110-652) accompanying H.R. 5658, the House-passed FY2009 Defense Authorization bill, Members stated that “The State of Israel faces a real and growing threat from shortand medium-range ballistic missiles from states such as the Syrian Arab Republic and the Islamic Republic of Iran. The committee believes that the deployment of a U.S.

Army-Navy/Transportable-2 (AN/TPY-2) missile defense discrimination radar to Israel would greatly increase the capabilities of both Israel and U.S. forces deployed in support of Israel to defend against ballistic missile threats. Therefore, the committee urges the Department of Defense to begin discussions with Israel about the possibility of deploying an AN/TPY-2 radar on its territory at the earliest feasible date.” The Senate version, S. 3001, included an amendment making funds available for the deployment of the AN/TPY-2 forward-based X-band radar.

U.S. Foreign Aid to Israel Congressional Research Service 15 Table 1. Defense Budget Appropriations for U.S.-Israeli Missile Defense: FY2006-FY2012 (current $ in millions) System Type FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 Request ShortRange (David’s Sling) $10.0 $20.4 $37.0 $72.895 $80.092 $84.722 $110.525 n/a Arrow (Arrow-2) $122.866 $117.494 $98.572 $74.342 $72.306 $66.427 $58.955 n/a High Altitude (Arrow-3) — $20.0 $30.0 $50.036 $58.966 $66.220 n/a Iron Dome $ 205.0 — n/a Total $132.866 $137.894 $155.572 $177.237 $202.434 $415.115 $235.700 $99.836 Emergency U.S. Stockpile in Israel In the early 1980s, Israeli leaders sought to expand what they called their “strategic collaboration” with the United States military by inviting U.S.

arms and equipment to be stockpiled at Israeli bases for use in wartime.41 Nearly a decade later, the United States agreed to establish munitions stockpiles in Israel for use by the United States and, with U.S. permission, for use by Israel in emergency situations. The United States European Command (EUCOM) manages the War Reserves Stock Allies-Israel (WRSA-I) program. The United States stores missiles, armored vehicles and artillery ammunition in Israel. According to one Israeli officer, “Officially, all of this equipment belongs to the US military... If however, there is a conflict, the IDF can ask for permission to use some of the equipment.”42 During the 2006 war against Hezbollah in Lebanon, the United States granted Israel access to the stockpile.

The initial value of the U.S. materiel stored in Israel was set at $100 million. It increased over time to $800 million in 2010. In the 111th Congress, lawmakers passed P.L. 111-266, the Security Cooperation Act of 2010. Section 302 of the Act amends the Department of Defense Appropriations Act, 2005 to extend the President's authority to transfer to Israel surplus defense items that are stockpiled in Israel and intended for use as Israeli reserve stocks. This amendment reportedly will increase the value of U.S. materiel stored in Israel from $800 million to $1.2 billion.43 41 “U.S.- Israel Strategic Link: Both Sides Take Stock,” New York Times, October 2, 1981.

42 “US may give Israel Iraq Ammo ,” Jerusalem Post, February 11, 2010. 43 "US to boost weapons stockpile in Israel," Agence France Presse, November 11, 2010.

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