Agreement) greatly reduced the value to radical Arab groups of the Palestinian issue as political ammunition. As a result, some of the most destabilizing radical groups in the region -- the Islamist organizations Hamas and Islamic Jihad, and the various secular radical Palestinian groups considerable power and influence.

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Israel's October 1994 peace treaty with Jordan strongly bolstered that pivotal country's strategic position, giving its government the confidence to defy Saddam Hussein and carry out a rapprochement with Saudi Arabia and the other oil-rich Arab countries. This dramatic reconfiguration has enhanced the resilience and durability of all conservative Arab states.

The multilateral peace negotiations, in which Israel is a key participant, have brought most Arab countries and Israel together in pursuit of joint projects that would improve their economic and social infrastructures. Such improvements would greatly benefit their ability to cope with radical challenges. Strengthening America's Strategic Regional Posture

Israel is a unique strategic asset for the United States in the Middle East. The two allies are currently expanding their long-standing partnership in key areas such as ballistic missile defense, counter-proliferation, and counter-terrorism. The U.S. armed forces make frequent use of Israeli facilities, hold joint maneuvers with their IDF counterparts, and procure a wide array of Israelidesigned defense technologies produced here in the United States.

As U.S. defense budgets and armed forces continue to shrink, making use of our allies' military capabilities becomes an increasingly important element of our national defense.

Israel and the United States are the world leaders in developing defenses against tactical and theater-range ballistic and cruise missiles. Current joint U.S.-Israeli efforts in this area, such as the Arrow missile, Boost Phase Intercept program, and Nautilus laser, can enhance deterrent capabilities and provide a shield for U.S. forces operating abroad, as well as civilian targets.

The U.S. armed forces continue to widely test and procure Israeli defense systems. As the Pentagon's R&D budget continues to shrink in coming years, buying proven high-tech Israeli systems "off the shelf" will become increasingly attractive. Israel specializes in a variety of technologies critical to the U.S. defense industrial base. Procurement contracts with Israeli defense technology firms can save the United States millions of dollars in development costs, with some projects emerging as large programs for U.S. and Israeli industries.

Intelligence cooperation with Israel played an important role during the 1991 Gulf war. Raw data on Iraq was provided to the United States, and Israeli-developed Unmanned Aerial Vehicles (UAVs) were used extensively by U.S. forces in the Gulf war to gather "real-time" information.

Israel provides facilities for the storage and maintenance of U.S. military material for American or Israeli use in a crisis situation. Up to $300 million worth of dual-use military supplies will be prepositioned in Israel. Israel's Haifa harbor continues to be the favorite port of call for the U.S. Navy's Sixth Fleet, accounting for roughly 50 percent of all visits in the Eastern Mediterranean. An average of 20 U.S. warships, including aircraft carriers, visit the port each year, many to utilize the harbor's excellent and unique repair and servicing facilities. Joint military maneuvers are routinely held between

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the Sixth Fleet, the U.S. Air Force or other American forces and their counterparts in the Israel Defense Forces (IDF). Last year, units of the IDF and American land, naval, and air forces conducted combined maneuvers in Israel's Negev desert and the Mediterranean Sea the largest joint exercises ever conducted between the two allies, underscoring the importance both sides attach to expanding the strategic relationship. Israel has also staged joint training with American special counter-terrorism forces. While intended primarily to protect the Israel from air attack and support the ground forces, the IDF could in particular circumstances join a coalition with the U.S. armed forces against a mutual threat.

Israel has taken the first steps toward participation in an anti-Islamist regional coalition. Its contacts with the Arab world have expanded dramatically since the signing of the Israel-PLO accord in September, 1993. These contacts have led to a full peace treaty with Jordan (in addition to the peace treaty with Egypt signed in 1979), and to the establishment of low-level diplomatic ties with Morocco, Tunisia, Oman, Qatar, and Mauritania, and warming relations with Bahrain, Yemen, and other moderate Arab nations concerned with Islamic radicalism.

Turkey, NATO's southeastern democratic bulwark which shares borders with Iraq, Iran, and Syria, and whose secular politicians only recently narrowly thwarted a bid for power by Islamic fundamentalists, has vastly upgraded its ties to Israel in the last two years. Just this month, Turkey and Israel signed landmark agreements to cooperate on intelligence, military training, and joint air exercises.

Maintaining and Expanding Democracy

U.S. support has helped Israel in its struggle to survive and to thrive as a Western democracy amidst hostile and authoritarian Arab regimes. It is doubtful, for example, if Israel could have defeated the combined Egyptian-Syrian attack of October 1973 if not for the U.S. airlift, which compensated for the earlier massive Soviet airlift to Egypt.

On January 20 of this year, the first free elections for a Palestinian legislative body took place in the West Bank and Gaza. These elections could -- and should -- serve as a model for the expansion of democracy in the region.

Expanding U.S. Economic Opportunities

American assistance to Israel continues to make good business sense; American aid dollars and loan guarantees get returned many times over to the United States in the form of American exports to Israel of both civilian and defense goods. In fact, over 80 percent of this aid is spent in the United States.

America is Israel's largest trading partner. Both countries are reaping the fruits of the Free Trade Agreement (FTA), which facilitated a large increase in trade between the two countries. In 1995, this trade amounted to an estimated $11 billion. The two allies enjoy a balanced trade relationship, in which Israel exported $5.4 billion in 1995 to the U.S. while importing $5.7 billion, according to U.S. Department of Commerce statistics. Over 100,000 American jobs depend on exports to Israel.

Israel also is America's most developed market in the region, second only to Canada in terms of per-capita imports of U.S. products by our major trading partners. Among Middle Eastern countries, Israel is first in per-capita imports and second only to Saudi Arabia in overall imports.

Along with increases in trade, greater cooperation in research and development between the United States and Israel is now occurring. Many U.S. companies invest in Israel to take advantage of Israeli high-tech research and development. By combining American capital and manufacturing with Israeli research capabilities and technology, Americans firms are able to increase their competitiveness. In fact, some of the most important technologies used in the world today were developed in Israel by U.S. companies that invest there.

A recent State Department report cited numerous recent efforts by the Government of Israel to facilitate the purchase of U.S. goods and services as Israel promised at the time U.S. loan guarantees were extended. To begin with, Israeli government agencies have been ordered to inform the U.S. Embassy when large tenders are offered so that American companies can compete. Second, the Israeli Government is funding half of the costs of American trade exhibitions in Israel to highlight U.S. companies. And finally, the Government of Israel is actively promoting imports from the United States. In 1995, for example, the late Prime Minister Rabin ordered that the engine size limit on government vehicles be changed to encourage the purchase of U.S.-made vehicles.

U.S. ASSISTANCE KEEPS ISRAEL A STRONG AND AN EFFECTIVE AMERICAN ALLY

I want to thank in particular the members of this Subcommittee for the consistent, strong support you have provided in legislating the aid package to Israel throughout the years. Assistance to Israel has been one of America's most effective foreign assistance programs, helping to bring economic and military stability to Israel and to achieve the extraordinary progress we have seen in the peace process to date.

Indeed, although aid to Israel has lost, since 1986, over a third of its value because of inflation, the absolute amount of this aid is substantial. But it is comparatively one of the most cost-effective investments that the United States makes in support of its international interests. At less than 3 percent of the costs of stationing and supporting U.S. troops in key areas of the world, aid to Israel helps protect vital American interests in the Middle East. And we get a good return on our money to Israel. As President Clinton stated just prior to his election: "I support the current levels of military and economic assistance to Israel.... This vital aid encourages long-term stability in the region." Elaborating on this same point, the Pentagon's Principal Deputy Assistant Secretary for International Security Affairs, Fred Smith, stated before the House Foreign Affairs Europe and the Middle East Subcommittee on April 13, 1994: "The U.S. commitment to Israel's security has long been the cornerstone of our policy in the Middle East. Our primary interest lies in securing a just and comprehensive peace between Israel and its Arab neighbors, which in turn will lead to increased security and stability in the eastern Mediterranean and Middle East. Israel's security must not be in doubt, if it is to feel confident to engage in bilateral and multilateral peace efforts." And, on the next day, Secretary of State Warren Christopher stated: "I want to make it unmistakably clear that the United States will continue to stand with Israel.... For more than four decades, the United States has stood with Israel, because it reflects our ideals and because it reinforces our interests.... Working together as partners and as allies and friends, we'll continue our search for peace and security until we've achieved all of our objectives."

U.S. Assistance Keeps Israel Strong

The U.S. assistance program to Israel has been remarkably successful. It has had a critical impact on the security of the Jewish state as it continues to face myriad regional threats. The Foreign Military Funding program has enabled Israel to build a cutting-edge air force equipped with the latest U.S.-made jet fighters and combat helicopters; Israel's air force has been the key element in making Israel a formidable U.S. ally and in ensuring its survival in a hostile environment. Thanks to these U.S. funds, Israel has been able to supplement its air force with powerful ground forces and an effective navy.

Nevertheless, Israel's defense requirements continue to exceed available budgetary resources, and the IDF has been forced to reduce the readiness of some units and limit defense research & development investment in order to pay for the top-priority weaponry needed to counter the emerging threats. For example, state-of-the-art F-15 fighter-bombers have been purchased to give Israel a longrange capability to deal with Iran and Iraq. In recent years, the IDF has been faced with a severe budget crisis. Funds for procurement of needed weapons systems and research and development on new capabilities has been slashed in order to cover the costs of current operational readiness and critical maintenance. Military costs have risen across the board, while the demands of security, such as countering more dangerous arms at greater distances, have risen. In the last two years, the IDF has been forced to pare its multi-year development plan by approximately $200 million -- a major cutback. This makes U.S. military aid to Israel a crucial component of that nation's ability to defend itself. In order for Israel's qualitative edge to be maintained, it is paramount that the United States continue current levels of security assistance.

U.S. Assistance Enables Israel To Pursue the Peace Process

The annual $3 billion aid to Israel has come to symbolize the immutability of the U.S.-Israel alliance. It has signaled to Israelis and Arabs alike that the relationship is rock-solid. The aid also helps offset the costs of redeployment from the territories which Israel is now incurring as part of the peace process. These are expected to total several hundred million dollars.

The constancy of the U.S.-Israel relationship -- as reflected in the constancy of the foreign-aid figure -- has been and continues to be indispensable for the peace process and regional stability. On the one hand, while Israel is, of course, engaged in the process for its own sake, it can only take risks for peace if it is confident of unwavering U.S. backing and assistance for its security. In the words of President Clinton (October 27, 1994), "Now that you are taking risks for peace, our role is to help you to minimize the risks of peace. I am committed to working with our Congress to maintain the current levels of military and economic assistance." On the other hand, only an unshakable U.S.-Israel link can persuade the Arabs that the United States will neither "deliver" Israel nor allow them to attack it, thereby leaving the Arabs no other option but to engage in serious negotiations. As President Clinton also stated on June 1, 1994: "I want to make it clear that the Clinton Administration stands firmly behind Israel's quest for peace. Whatever doubts and uncertainties accompany this quest, Israel should never question or doubt the United States' unshakable commitment to its security and well-being. We have stood by Israel in the face war. We have stood by Israel in the pursuit of peace. And we will continue to stand by Israel until her people achieve the peace and security they have so long been denied."

US. Assistance Is Relatively Low-Cost

Compared to the enormous costs of upholding U.S. security interests in Europe and the Far East, Israel offers America a far less costly defense of these interests in the equally important Middle East:

The United States maintains 135,000 American soldiers in Europe, spending annually $80-$110 billion on NATO; and there are 100,000 American soldiers in Asia and the Pacific region, with annual U.S. expenditures of $30-$50 billion. By comparison, the United States does not maintain any troops in Israel, and spends $3 billion per year in aid to Israel. Of this total aid package, the $1.2 billion in economic assistance is used to repay old military debts, and Israel spends $1.425 billion in the United States out of its $1.8 billion U.S. military assistance.

Reducing U.S. Assistance Would Jeopardize the Program's Effectiveness

Any reduction in the $3 billion aid package to Israel has the potential to seriously endanger the peace process. It would demonstrate to the Israeli public without whose support no Israeli compromises are possible -- that for all its generous peace proposals and success in restoring good personal ties with Washington, Israel is unable to preserve the U.S. aid level which had previously been maintained for seven years in a row.

Concomitantly, even a small reduction in aid to Israel would be perceived by Arab parties as a signal that the U.S.-Israel bond is eroding. Such a perception would encourage them to believe that Washington might be amenable to Arab demands that the U.S. press Israel to make unilateral concessions. This would reduce their incentive to negotiate seriously with the Israelis -- and may even tempt some radical regimes to once again consider the military option.

A reduction would also erode Israel's qualitative military edge, without which the Israelis cannot seriously consider taking risks for peace. It would, for instance, make it more difficult for Israel to pay approximately $2 billion for the 21 advanced F-15I jet fighters it has decided to procure in order to deal with the potential threats of the 21st century. At a time of economic challenge and deep cuts in its defense budget, Israel needs to develop an answer to the emerging threat of Iranian and Syrian missiles equipped with unconventional warheads, in addition to constantly upgrading its defenses against a conventional attack by rapidly growing Arab armies. Since the 1973 war, the nations of the Middle East have expended approximately $500 billion on their armed forces, despite a corresponding period of stagnant economic growth. Even after the destruction of much of Iraq's military might, the Arab states and Iran now outnumber Israel eight-to-one in manpower, seven-to-one in tanks and armored fighting vehicles, and more than four-to-one in aircraft. Even with the full U.S. aid package, Israel will find the preservation of its security a daunting challenge.

CONCLUSION

The deep, broad-based partnership between the United States and Israel continues to flourish. The democratic elections in Israel, which in 1992 led to the peaceful transfer of power from the governing party to its most bitter rival -- an occurrence unknown in the Arab world -- served to remind us of the extent to which the Israelis share our most fundamental values. A new era is dawning that holds great promise for both countries, and bodes well for the future of U.S.-Israel relations. For the