Prime Minister Benjamin Netanyahu announced Monday that Israel is interested in signing a new military aid package with the U.S. as soon as possible. To that end, Netanyahu's office said Israel's acting National Security Adviser Jacob Nagel will take off for meetings in Washington D.C. on Sunday July 31 to meet with his American counterpart, Susan Rice, and workout of the deal's final details.

On Monday morning Haaretz reported that Netanyahu is leaning towards giving up most of his demands and plans to acquiesce to the majority of American conditions for the new aid package. These include a gradual phasing out of Israel’s spending of up to 40 percent of American aid on purchases from Israeli defense contractors and for fuel.

"Israel places great importance on its ability to plan and to have certainty regarding the military aid it receives from the U.S., as well as respecting bilateral agreements," the statement from the Prime Minister's Office said.

"Thus, Israel has no interest in changing the amount of annual aid for the coming year, as per the existing agreement, without the consent of the American and Israeli governments. For the 2017 budgetary year, which is not covered in the new Memorandum of Understanding (MoU), Israel remains committed to the amount laid out in the present MoU, which stands at $3.1 billion, and is not requesting additional aid," it said.

Open gallery view National Security Advisor Susan Rice. July 15, 2015. Credit: Reuters

The announcement from the Prime Minister's Office concerns the proposal raised two months ago by Republican Senator Lindsey Graham of South Carolina, in which the United States will give Israel a special and one-time grant of $300 million in the 2017 budgetary year, which would fall under the old military aid agreement. This grant would compensate Israel for part of its requests that would not be agreed to in the new agreement, which will go into effect as of the 2018 U.S. fiscal year.

After holding discussions on Graham's proposal in Jerusalem, Israel decided it is not interested in advancing the initiative, saying that this would create a situation in which Israel is not respecting an already-signed agreement that would then be reopened. Israel has made this clear to the Obama administration and last week informed Graham too, thanking him for his help while saying the proposal complicates the negotiations over the new military aid agreement.

Negotiations between the United States and Israel on the aid package for the coming decade began in November. After a few rounds the talks ran aground in May. The Americans made clear that their offer was final and it was up to Israel whether to sign while President Barack Obama is still in office or wait for the next president to take office in January 2017.

Nagel has held videoconferences with Rice and Yael Lempert, who heads the White House’s Israel desk, over the past few weeks to try resolve the remaining disagreements and the meeting at the White House is apparently to finalize the details. Last Monday Netanyahu told the Knesset he hoped the deal would be completed within a few weeks. That day Defense Minister Avigdor Lieberman told a meeting of the Knesset Foreign Affairs and Defense Committee that he believed the deal would be clinched by Rosh Hashanah, which falls on October 2 this year.

Netanyahu is not happy with the U.S. proposal both in terms of the amount and the conditions the administration is imposing. However, he has decided to seal the deal while Obama is still in office and is leaning toward waiving most of his demands.

After accepting those terms, U.S. defense aid over the next decade could rise from the current proposal of $37 billion to $40 billion.

According to senior officials in Jerusalem, Netanyahu has agreed to the American demand to change the agreement Israel signed with the United States in the 1980s, which allowed the Defense Ministry and the army to spend nearly 40 percent of the annual U.S. aid on off-shore procurement, that is, purchases in Israel, as well as fuel purchases. The Americans said the current arrangement no longer serves the interests of both countries and is an ineffective way to use the funding.

According to the agreement Israel and the United States signed in 2007, which will expire in 2018, Israel receives military aid of about $3 billion a year on average. Israel can spend 26 percent of this sum, or about $800 million a year, on purchases in shekels from Israeli defense industries. Moreover, according to senior U.S. officials, Israel spent about 13 percent of the annual American aid over the past few years, or about $400 million, to purchase fuel for the Israel Defense Forces, particularly airplane fuel. Israel is the only country in the world that is permitted to use American aid for these two needs.

Despite pressure by Israeli security industries and Netanyahu’s own opposition, he has had to back down on it and is making do with a gradual reduction of the use of the aid in Israel. One of the issues Nagel is expected to close in Washington is the length of the period until the arrangement stops entirely. Israel wants it to wind down over 10 years, while the Americans want it to cease after seven or eight years.

Another contentious issue over which Netanyahu seems ready to give in is the funding of Israel’s missile defense system. Until now, Israel applies annually to the administration and to Congress for funding to develop systems such as Iron Dome. Every year negotiations take place with the White House and with Congress that conclude with an agreed-on sum to give to Israel for missile defense. The United States now wants to include this aid in the basic aid budget. In return, the administration wants Israel to agree to forgo its separate channel to Congress for the purpose of increasing aid to its missile program.