Israel is one of about 30 countries in the world who receive military aid, a program which the US operates for a number of reasons. With countries like Israel its mostly to buy political influence, partly its about business because if the US provides any funding to the development of an Israeli weapon system they have the right to veto its export. In the past countries like India have wanted to purchase the Arrow but the US vetoed the sale of Arrow and then went and offered India the Patriot. When it was discovered the Lavi jet was going to be a serious threat to exports of America's new F16 they pushed to kill the project and combine that and the state of the economy at the time Lavi got the axe. The military aid program itself is also an indirect government subsidy to the US arms industry. ... weapons development is an expensive business and the US arms companies. Whilst the US gives Israel military aid because it has its own domestic political agenda the fact Israel is the highest recipient as probably more a result of the Cold War. During the Cold War, until 1967 America didn't see much point in being a big supporter of Israel because didn't see any tactical uses as far as America was concerned then came the 6 day war little Israel against 3 Soviet client states and suddenly Israel might be of use to us and so the 2 countries started forming closer bonds. Then came the Yom Kippur war and Israel came close to loosing and was on nuclear alert and then the American weapons came flooding in allowing Israel to go on the offensive and Israel has got military aid since. It is also a fact though that Israel spends more of its own money on American weapons every year than it gets given, military aid is more like a buy 1 get 1 free sort of thing. Funding towards development of specific projects there are still benefits to America. The US is contributing about a third of the cost of development of the Arrow 3 and the people involved in developing Americas own missile defense system have said they have learned all sorts of things from Arrow 3 that they never even considered using in Americas systems. If the US wants to export Arrow they probably can and without Israel's permission because they are part funding it. The benefits from military aid might be so obvious to the ordinary individual but the politicians don't do anything unless there is something in it for them and it doesn't have to be a financial reward for America.
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from the article: Barak, Panetta to announce special U.S. military assistance to Israel