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As time goes by, the canceled deal involving the sale of the Phalcon early warning spy plane to China is gradually emerging as one of the gravest blunders in the history of Israeli foreign affairs and defense policies. The grounded aircraft, currently stored at the Israel Aircraft Industries in Lod, continues to generate damage. Last year, the deal dented Israeli-American relations. When Israel capitulated to American pressure and called a halt to the deal, a crisis developed in Israel's relations with China.

The Phalcon is today the focus of a giant damages suit and a senior Defense Ministry official last week estimated that Israeli taxpayers would have to part with a billion shekels in damages to the Chinese, who were adversely affected by the deal's cancelation. After the September 11 terror attacks in the United States and the improvement in relations between the superpowers, Israel once more requested American permission for the Phalcon deal with China. The Americans issued a categorical "No."

The Defense Ministry's director general, Major General (ret.) Amos Yaron, provided the Washington administration with the details of the Chinese damages suit without requesting any American participation in funding. Administration officials listened to Yaron, their faces expressionless.

The country is tired of the various demands for the appointment of commissions of inquiry; nonetheless, the Phalcon affair cries out for a thorough investigation that will find out who was responsible for the fiasco, what mistakes were committed and - most importantly - how weapons deals decisions are made. The answers are not needed for historical research: Israel is on the brink of yet another major deal involving the sale of the Phalcon - this time to India.

Israel was badly burned by the Phalcon affair because it ventured onto the playing field of the world's superpowers without understanding the rules of the game and without taking precautionary measures. A number of disturbing questions hover above the canceled deal. Were all the diplomatic ramifications taken into consideration before the deal was signed with China? The Israeli defense establishment knew that the U.S. had its reservations about the supply of advanced weapons to the Chinese and previous administrations in Washington had badgered Israel considerably over this issue.

Did the deal's wording expose Israel to the present lawsuit? What role was played by the Eisenberg Group, which brokered this deal? Why did Chinese President Jiang Zemin, in his talks with then-prime minister Ehud Barak in April 2000, get the impression that "everything was in order"? Barak exhibited footdragging in his handling of the deal and ignored the Foreign Ministry's warnings.

Weapons sales are important for Israel. They keep its defense industries alive and help open diplomatic doors, especially in the Third World. The last country to renew its relations with Israel, Sri Lanka, did so in return for an arms deal.

Decisions on weapons sales are made by a select group of senior officials in the Defense Ministry and in Israel's defense industries and are loosely supervised by the politicians. The foreign minister's signature is essentially a formality designed to show respect for the politicians.

Ever since the failure of the Phalcon deal, a number of lessons have been learned. The center of gravity for military exports to Asia has moved from China to India, and this time Israel is taking pains to update Washington in advance. The previous American administration approved, even if grudgingly, the sale to India of Israel's Green Pine anti-missile radar system. Since then, American relations with New Delhi have improved and the present administration is heartily supporting not only the sale of the Phalcon to the Indians but also additional arms deals.

The Foreign Ministry, which understood - before the defense establishment did - that the Phalcon would never land in Beijing, is now creating a political-military division, one of whose functions will be to coordinate all the major details involving weapons sales. One of the first dossiers on the division's desk will be the Phalcon deal with India.

The Foreign Ministry fears a sharp response from Beijing over the sale - to its neighbor and rival - of the plane that was denied to China. Nonetheless, the contacts with the Indians have apparently already passed the point of no-return. A thorough study is needed now, primarily to prevent future blunders.