Canceling the sub deal would be politically devastating for Angela Merkal. Germany gives Israel nice deals on weaponry as part of its Holocaust compensation efforts and so it wouldn't be to good for Angela Merkal if she canceled a submarine deal which Israel needs for its security and its all because of plans to build 1000 homes in Jerusalem. Most Jews and supporters of Israel don't get that. There is also the fact that the deals have been done and if she backed out now she would have to compensate HDW who build the sub so it would be politically damaging to her for a variety of reasons.
Firebomb thrown during demonstration in northern Israeli town of Umm al Fahm (Haaretz)
from the article: Germany: Israel plan for new West Bank homes 'devastating' to peace