Executive Summary

The United States and Israel are now approaching the renegotiation of their 10-year defense Memorandum of Understanding, or MOU. Israeli officials have said they want to phase out US military grant aid — a position that sounds like a step toward ending US military assistance to Israel. It is not.

What top Israeli officials — including Prime Minister Benjamin Netanyahu — are quietly backing is not a reduction in American support, but a reorganization of it: shifting billions in resources from State Department–administered foreign aid grants into general Pentagon procurement accounts, industrial partnerships, and sustainment pipelines. The shift will strip away the political and diplomatic oversight mechanisms that make the relationship publicly accountable, moving it from a visible annual aid vote into the opaque machinery of defense acquisition, where oversight is limited and political accountability is minimal. The result would be a defense relationship that is simultaneously deeper and less transparent.

Since fiscal year 2019, the United States has provided $3.3 billion per year in Foreign Military Financing, or FMF, grants to Israel, plus an additional $500 million per year for missile defense cooperation. About 25 percent of this FMF grant money has gone toward offshore procurement, or OSP, funds allocated to Israel to spend domestically on its own defense industry and military equipment. Effectively, it is a US subsidy for Israel’s military industrial complex.

This OSP precedent is slated to end with the expiration of the current MOU. This has fueled Israeli proposals to phase out FMF grants altogether, replacing them with a relationship centered on US–Israeli defense integration. This would embed Israeli firms and Israeli–origin intellectual property inside larger Pentagon programs and production. Unlike the foreign assistance process, the military procurement framework would not be subject to the political scrutiny of Congress and the State Department, but would be evaluated on bureaucratic criteria such as cost, readiness, and capability. This shift would likely be justified by reframing US support not as a handout to Israel, but as an investment in American military readiness, industrial capacity, and jobs.

At a time when the US–Israel relationship should be scrutinized in light of Israeli actions that run counter to US interests, such a structural shift would be counterproductive. To avoid this outcome, any procurement-centered relationship should meet these three basic requirements:

• Clear metrics to assess whether Israeli participation in Pentagon programs serves US defense requirements.

• Program-level transparency regarding the existence, scale, cost, and rationale of each procurement program.

• Cross-committee coordination in Congress to ensure visibility and accountability to non-military congressional oversight committees.

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