The assistance is needed "to help us cope with the present difficulties in which the Israeli economy finds itself... because of the continuing security situation," the Finance Ministry's Director General Ohad Marani told Israel Radio in a report broadcast Sunday.
A well-placed source in the prime minister's office told United Press International that $3 billion of the $4 billion sought in military aid would be spent on acquisitions in the United States to help Israel prepare for the impact of an eventual U.S.-led offensive against Saddam Hussein's regime in Iraq, and to "fight terror" -- a reference to ongoing conflict with Palestinian militants in the West bank and Gaza.
On Sunday, Israel test-fired an Arrow anti-ballistic missile, developed since the 1991 Gulf War when Iraqi Scud missiles landed in various parts of the country. In contrast to 12 years ago, Israel now has what military experts consider one of the most sophisticated missile defense systems in the world.
Explaining the size of the aid request the source noted that Sunday's test cost $10 million.
The loan guarantees should improve Israel's credit rating in the United States and help it raise money at lower interest rates, the source added. The Israeli economy has been going through one its worst periods in decades and economists predict worse for 2003.
Preliminary National Accounts Estimates for 2002, issued last week by the government's Central Bureau of Statistics, show that the per capita gross domestic product dropped last year by 3 percent, to $15,600. It was the second consecutive drop after having gone down by 3.2 percent in 2001, the bureau reported.
Analysts said the aid package would give a boost Prime Minister Ariel Sharon's campaign for re-election in the end-of-the-month voting. Current surveys indicate that the right-wing governing Likud Party will have a relative majority, but the question is how much will it have to rely on the support of smaller coalition partners to form a government.
Officials believe the United States will insist that none of the money will be spent on settlements in Palestinian areas. Israel also undertakes to transfer to Yasser Arafat's Palestinian Authority the $500 million in taxes it has raised on their behalf. Israel's refusal to hand over the money on the grounds that it will be used to finance more attacks on its citizens has been one of the irritants in U.S.-Israeli relations.
A government official said agreement to transfer the funds due to the Palestinians was reached after Washington set up a team to monitor how the money was disbursed. "We trust them," he said of said of the monitors.