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Prime Minister Benjamin Netanyahu caved into demands from Defense Minister Ehud Barak late Monday night to not cut defense spending in the upcoming state budget.

Netanyahu and Barak reached the agreement following a meeting between the two Monday night.

The cabinet is set to convene Tuesday for a crucial discussion on the budget for this year 2009 and 2010. The discussion is expected to be especially long given that understandings were still not reached following meetings between the prime minister and Finance Ministry officials late last night.

Earlier Monday, senior treasury officials warned Netanyahu against giving in to Barak.

"The upper echelons of the defense establishment need to discover an understanding of the needs of society. This is a state that has an army and not the other way around," a senior treasury official said Monday.

Treasury officials have stood firm in their insistence on cutting NIS 3 billion from the defense budget. They claim that not doing so will lead to budget cuts in other ministries, including education and health.