Germany is providing 200 Leopard 2A7+ main battle tanks built by Munich's Krauss-Maffei Wegmann and Rheinmetall to Saudi Arabia as well as Dolphin-class submarines produced by Howaldtswerke Deutsche Werft of Kiel, owned by ThyssenKrupp, to Israel.
And now, in a bizarre twist, Israel and Germany are jointly developing the Pilum smart air-to-ground missiles to be sold with the Eurofighter jet in service with Saudi Arabia and other countries.
The Eurofighter, also known as the Typhoon, is produced by a consortium of British, German, Italian and Spanish companies.
In the Libyan conflict, weapons manufactured by German defense companies are being used by both sides.
Libyan leader Moammar Gadhafi's forces use tank transporters built by Mercedes Benz, German-made electronic jamming systems and Milan-3 surface-to-air missiles made by the French-German MBDA company.
NATO forces employ the twin-engined Eurofighters for their air campaign against Gadhafi's beleaguered regime.
Since Germany's post-1945 revival, arms sales have been a highly sensitive issue in the country that started World War II. Such sales were severely restricted under the constitution, putting German manufacturers at a decided disadvantage with the U.S., British and European defense industries.
But in recent years, as Europe's defense spending has been steadily reduced, making exports increasingly important, Germany has eased these restrictions.
These days, 70 percent of German defense manufacturers' products are sold abroad.
The Stockholm International Peace Research Institute, which monitors global arms sales, says Germany ranks third among top arms suppliers after the United States and Russia.
Figures released by the Berlin government indicate Saudi Arabia, one of the world's most prolific arms buyers, has been among Germany's top 20 military customers even though its main source of arms is the United States and Germany considers the Middle East a conflict zone.
"Deals involving the export of missile parts, machine guns, munitions and artillery shells to Riyadh were approved -- even in the years when Germany was led by a coalition government made up of the center-left Social Democrats and the Green Party in 1988-2005," the German news magazine Der Spiegel observed in July.
But the Leopard tank deal, unveiled in July, a month after it was quietly approved by Merkel's government, was a game-changer.
The Leopard contract alone is worth an estimated $2.85 billion. That's about one-fifth the value of all Germany's global arms exports in 2009, of which arms sales to Saudi Arabia totaled $167.9 million.
The Leopard contract, approved by Chancellor Angela Merkel's coalition government, stirred a major political controversy and a moral uproar in Germany over its arms export and foreign policies.
It raised questions of whether economic interests were taking precedence over human rights considerations, particularly since Saudi Arabia's monarchy has sought to stifle pro-democracy uprisings in the Arab world.
The coalition itself is divided on the issue and the opposition, led by the Social Democrats, has demanded the deal be scrapped.
The deal had been kept secret and Merkel maintained that it would have been made public.
All arms exports are made public every December but the one for 2011 isn't scheduled for publication for more than a year from now.
There were questions that the deal could jeopardize Germany's delicate relations with Israel, which remain heavily influenced by the Holocaust.
German media even mused whether Berlin had sought Israel's approval for the tank deal, as it had with the United States. Israel has been non-committal on the issue.
Israeli Deputy Foreign Minister Danny Ayalon said during a visit to Berlin: "It's in the nature of such matters that one does not speak about them publicly. But I can assure you we fully and completely trust Germany's government."
That's no doubt because Merkel's coalition is supplying Israel's expanding navy with three more Dolphin submarines, reputedly capable of launching nuclear-tipped cruise missiles, at heavy discounts.
These will double the strength of Israel's submarine fleet and reinforce its strategic reach, particularly against Iran.
The Jerusalem Post said Israeli defense analysts don't see the Leopards as a threat. "What ostensibly took place," it observed, "was that Berlin updated the Israeli government and Israel simply said nothing."