TEL AVIV (Reuters) - Israel and the United States signaled on Sunday they were starting to put disputes over the Iran nuclear deal behind them, announcing resumed talks on U.S. defense aid for Israel as it hosted Washington’s top general and a joint air force drill.

U.S. Chairman of the Joint Chiefs of Staff Joseph Dunford (L) and Israel's Chief of Staff Lieutenant General Gadi Eizenkot (R) salute during a welcoming ceremony for Dunford in Tel Aviv, Israel, October 18, 2015. REUTERS/Baz Ratner

The allies had been looking to agree on a 10-year military aid package to extend the current U.S. grants to Israel worth $3 billion annually, which are due to expire in 2017.

But Prime Minister Benjamin Netanyahu froze those negotiations ahead of the July deal reached between Iran and world powers, which Israel deems insufficiently stringent and against which it had lobbied the U.S. Congress.

“With the nuclear deal now moving ahead, Israel is also moving ahead, hoping to forge a common policy with the United states to address the continuing dangers posed by Iran,” Ron Dermer, Israel’s ambassador to the United States, said in a Facebook post.

“Discussions over a new Memorandum of Understanding between Israel and the United States, which had been on hold for some time, resumed this past week in Washington,” he said, using a term for the defense-aid agreement.

Netanyahu, who is due to meet President Barack Obama at the White House next month, warmly received U.S. Marine General Joseph Dunford and praised him for making Israel the first stop of his first trip abroad since becoming chairman of the U.S. military’s Joint Chiefs of Staff on Oct. 1.

“That’s an expression of the tremendous alliance between Israel and the United States,” Netanyahu said, adding that the alliance was more important than ever given threats in the region, including from Iran.

“I think that there’s common agreement that we have to stop this aggression in the region.”

“BLUE FLAG” DRILL

Israel also launched, at a southern desert base, a two-week air force drill with the United States known as “Blue Flag”.

The exercise, held twice a year, “creates a multi-national learning environment, including fictional countries, in which participants can practice planning and execution of large air force operations,” the Israeli military said in a statement. It said other countries were involved, but did not name them.

Dunford sought to affirm the strength of military ties, which have weathered past political disputes.

“Through all of the ups and downs in a family relationship, the military-to-military relationship has remained strong,” he said during a visit to the Defence Ministry in Tel Aviv. “The challenges that we face, we face together.”

The aid package came up during closed-door discussions between the U.S. general and Israel’s Defence Minister Moshe Yaalon, although not in detail, Dunford’s spokesman said.

Dermer said defense-aid discussions would also be pursued during Yaalon’s talks in Washington later this month and at the White House meeting between Netanyahu and Obama.

Before the suspension, the two sides were close to a new package of grants worth $3.6 billion to $3.7 billion a year, U.S. and Israeli officials have said. They have predicted that the amount could rise further as Israel argues it needs more aid to offset a likely windfall for Iran in sanctions relief which might be used to finance anti-Israel guerrillas.

“Israel hopes that the discussions we are now engaged in will culminate in a long-term agreement that will dramatically upgrade Israel’s ability to defend itself by itself,” Dermer said.