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Every year, and even a few times a year lately, Israel's citizens are treated to the ritual heated debate between the defense minister and the finance minister, each accompanied by a chorus of officials from their respective ministries, regarding the size of the defense budget. Will it be guns or butter, or, more specifically, defense expenditures or welfare payments, current expenditures or investments in the country's infrastructure? Which ministry's budget is going to be cut and by how much?

It is not only the defense posture and the state of the economy in the coming year that are at stake here. The size and shape of next year's budgets has a long-term effect on the economy's ability to create wealth in the years to come and, therefore, on the resources that will be available for guns and butter in future years.

In his book, "The Rise and Fall of the Great Powers," Paul Kennedy provides illuminating examples from the past 500 years of world history of the relation between nations' military prowess and their economic strength, and how overspending on defense can, in the long run, lead to a nation's economic decline and the subsequent inability to fund defense needs.

"Wealth is usually needed to underpin military power," he writes, and continues: "If, however, too large a proportion of the state's resources is diverted from wealth creation and allocated instead to military purposes, then that is likely to lead to a weakening of national power over the longer term. The history of nations... shows a very significant correlation over the longer term between productive and revenue-raising capacities on the one hand and military strength on the other".

The collapse of the Soviet Union, which occurred a few years after the publication of Kennedy's book, serves as a striking example of his thesis that bloated military budgets can lead to drastic economic damage - to the point that military needs can no longer be sustained.

The military balance between Israel and its hostile neighbors may serve as the best example of the relation between economic growth and military prowess. Israel's superiority in conventional military forces has become substantial over the past 20 years. Israel's qualitative edge, an important component of this superiority, is the direct result of the local development of first-grade weapons systems funded through the defense budget. The year-to-year funding was made possible by Israel's sustained economic growth over recent years allowing for increased defense expenditures, while the defense budget as a percentage of the overall budget and the nation's GDP actually decreased. The stagnant economies of the Arab countries did not permit them to keep pace with Israel's advance, and the military balance tilted in Israel's favor as the years went by. Israel's neighbors' awareness of the changing military balance must have contributed to deterring any thoughts of aggression on their part during the past two years.

But what about next year's defense budget? Are the Finance Ministry people right when they demand drastic cuts in the defense budget to help restore a reasonable balance between reduced government revenues and government expenditure so that the government budget deficit can be kept within acceptable bounds? Will such a policy provide the basis for Israel's economic growth in future years?

These financial wizards seem to have forgotten what the root cause of Israel's current economic malaise is. It is the war of terror that Yasser Arafat launched against Israel in September 2000 - a war that has created a climate of uncertainty and insecurity in which economic growth has become unfeasible. Investments have dried up; the tourist industry is dead; and unemployment is growing. Rather than growing, the economy is contracting from year to year.

There is no economic fix to this situation, only a military one. Only a victory for the Israel Defense Forces victory can restore the conditions for growth in the economy. Only then will the time come to reduce the defense budget to reasonable levels. In the meantime, the IDF must be given the resources needed to wage the war against terrorism and to win it. There can be no economic recovery before this happens. Cutting the defense budget at this time is moving in the wrong direction.