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The defense budget is the hardest budget to analyze. It contains shekels, dollars and other currencies, items with and without value-added tax. There are baseline figures, one-time expenditures and money for special events such as Operation Defensive Shield, preparations for the war in Iraq or construction of the separation fence. Furthermore, some of the data is not publicized. Thus both the Finance and Defense ministries, can use different calculations and make contradictory, confusing claims.

The army views its shekel budget for 2003 (excluding American aid) as the basis for discussions - a sum of NIS 36.5 billion. The treasury is looking at the baseline budget, without one-time expenditures, and that sum is NIS 33.6 billion.

Thus when the treasury speaks of a NIS 3 billion cut, it means a 2004 budget of NIS 30.6 billion. The army, in contrast, is willing to go no lower than NIS 35 billion.

Yesterday, Prime Minister Ariel Sharon decided that the 2004 defense budget would be NIS 32.85 billion, midway between these two competing figures. From the army's perspective, this is a cut of NIS 3.65 billion. But from the treasury's perspective, it is a cut of only NIS 0.75 billion.

Defense Minister Shaul Mofaz hastened to employ the army's well-known tactic of fear-mongering: He announced that the cut would put Israel at "unreasonable risk" - and who wants to be at risk?

Minister in the Finance Ministry Meir Sheetrit quickly countered by threatening further cuts in education, health and welfare, saying there was no other way to make up the NIS 2.25 billion shortfall left by Sharon's decision.

From a political standpoint, Sharon is not trying to damage Finance Minister Benjamin Netanyahu. He has overall given Netanyahu a free hand with the economy, lest he be accused of torpedoing his rival. But there are a handful of issues that are dear to Sharon's heart: the defense budget, water prices for farmers, foreign workers for agriculture and land policy.

In truth, the defense budget is the only budget that has grown in recent years; all others have been cut. From 1996 through 2000, the shekel portion of the defense budget totaled NIS 34 billion; since then, thanks to the intifada, it has grown to NIS 36.5 billion. Now, it is starting to come down again.

The defense establishment understands that the army must cut costs - among other methods, by reducing its size and by paring pensions and benefits for career officers. Deputy Chief of Staff Gaby Ashkenazy has been working on this project for some time, but it is now clear that he will have to cut more than he had planned.

Every year, the current chief of staff has pulled a new security threat out of his hat to stave off cuts in the defense budget. Last year, it was Saddam Hussein and the threat of chemical warheads. This year, however, Chief of Staff Moshe Ya'alon has a problem, because the eastern front has collapsed. There is no Saddam. The Syrian army is rusting. The United States is sitting in the heart of the Arab world. In short, the threat of a ground war has greatly diminished. That is why yesterday, Mofaz mentioned the Iranian threat, and army officers will soon begin talking of the threat of missiles and nonconventional weapons. After all, the battle over the defense budget is not over yet.