The contracts are part of a reciprocal agreement between Israel's Defense Ministry and the Italian government for Israel's purchase of 30 Alenia Aermacchi M-346 advanced jet trainers for its air force.
Globes, Israel's business daily, reported the Italian deal involves a consortium of Finmeccanica, Alenia Aermacchi, Telespazio and Selex Elsag.
Alenia Aermacchi will provided the M-346s, along with engines, maintenance, logistics, simulators and training worth $1 billion, some $600 million of which go to the Italian aircraft manufacturer.
Selex Elsag will supply the identification, communications and computer systems for the M346s, which will replace Israel's aging fleet of Vietnam-era Douglas A-4 Skyhawks.
Delivery of the new Italian jet trainers is to start in mid-2014.
The Israelis' side of the deal includes state-owned IAI, flagship of Israel's defense industry, building a $182 million high-resolution optical military satellite system, known as OPTSAT-3000, for Telespazio, prime contractor for the $200 million satellite, launch services, operations and logistics services and in-orbit testing.
The satellite's scheduled for delivery in 2015.
IAI will also supply the converted G-550 Gulfstream executive aircraft, with its Elta Systems division producing the NATO-standard communications, tactical links and identification subsystems. These will cost $750 million.
IAI's new president and chief executive, Joseph Weiss, noted that "the Airborne Early Warning aircraft and the observation satellite are two of IAI's strategic products.
"Beyond the financial and occupational aspects, this deal represents a significant collaboration with the European industry."
Alenia Aermacchi won the M-346 contract in February after a drawn-out competition with the T-50 Eagle manufactured by Korean Aerospace Industries and Lockheed Martin Co. of the United States.
The contract involved many months of often tense horse trading, with allegations of double-dealing between Israel's Ministry of Defense and the two competitors to secure the best reciprocal deal for the Jewish state's increasingly export-oriented defense industry.
South Korea offered reciprocal deals potentially worth $1.6 billion that included the purchase Israeli radar systems as well as upgrades for helicopters and Lockheed Martin C-130 transport aircraft.
It later suggested the possible purchase of an unspecified number of Iron Dome counter-rocket batteries developed and built by Israel's Rafael Advanced Defense Systems.
The Haaretz daily reported in February, after the M-346 deal was wrapped up, that the Defense Ministry "insists the choice was made mainly on the relative capabilities of the planes ... The Italian plane is also cheaper to operate and maintain.
"But ministry officials acknowledged that South Korea's much less generous reciprocal purchasing offer played a role as well."
During negotiations, the Defense Ministry was increasingly hampered by hefty cuts in military spending the government was planning and later implemented.
The ministry and the air force won't buy the trainers outright. Globes reported they will be owned by Thor, a special purposes company set up by Israel's Elbit Systems and IAI, which will lease them to the air force.
Funding for the M-346 purchase was largely external. The ministry has put up $400 million of the $1 billion price tag. The remaining $600 million will come from a financial syndicate made up of Israel's Bank Hapoalim, which will put $200 million, with Unicredit SpA, Italy's biggest bank; and Casa, its largest pension fund, $200 million each.
Arms sales form the backbone of Israel's economy, hitting an unprecedented $7.2 billion in exports in 2010.
IAI has secured several major defense deals in recent months. In January, the company signed a $1.6 billion deal with oil-rich Azerbaijan, a former Soviet republic in the Caucasus that has become a key Israeli ally against Iran, for aircraft, missiles, unmanned aerial vehicles and intelligence systems.
That boosted IAI's backlog to $9.7 billion.
The company's net profit rose 16 percent to $54 million for the first quarter from $46 million for the corresponding quarter in 2011. Revenue increased 4.3 percent to $894 million from $855 million.