The end of U.S. military aid to Israel is no longer hypothetical. On December 25, Prime Minister Benjamin Netanyahu announced a 350 billion shekel, roughly $120 billion, investment in Israel's domestic defense industry over the next decade. Two weeks later, in his Mar-a-Lago interview with The Economist, he confirmed he intends to taper U.S. military aid to zero. On April 26, Calcalist reported that Washington and Jerusalem were preparing formal talks on a successor framework that drives Foreign Military Financing to zero by 2038, with teams led by U.S. Secretary of State Marco Rubio and Israeli Defense Ministry Director General Amir Baram.
The era of unconditional U.S. grant aid to Israel is closing. The only open question is whether the transition is built or improvised. The risks of drift fall on both sides and grow with every quarter the architecture remains undefined.
Begin with the structural reality. The 2016 Memorandum of Understanding already set the conditions for a phaseout. Off-Shore Procurement, the unique provision that let Israel spend roughly 26.3 percent of FMF on its own industry, phases to zero in fiscal year 2028. Without it, the legacy aid model converts almost dollar-for-dollar into U.S. industrial subsidy. The marginal Israeli industrial benefit from staying inside the system shrinks every fiscal year.
Israel does not need this aid to remain a tier-one defense power. Defense exports hit $14.79 billion in 2024, the fourth consecutive record year. The combined order backlog at IAI, Elbit, and Rafael exceeded $65 billion at year-end. Germany bought Arrow 3 for €4 billion. Rafael and Raytheon opened a Tamir interceptor plant in Camden, Arkansas, on a $1.25 billion direct commercial sales contract that will also supply the U.S. Marine Corps. Elbit's Iron Fist active protection system now ships on the U.S. Army's Bradley Fighting Vehicle. This is not 1979. It is not 1985. Asking Israel to fund its own defense is not abandonment, it is the recognition of strength.
The American case is parallel. The U.S. defense industrial base operates near full capacity. Record order backlogs have already reduced American manufacturers' reliance on Israeli procurement. Senator Lindsey Graham, the staunchest Israel ally in the Senate, has pledged to accelerate the phaseout and recommend the savings be plowed back into the U.S. military. The Heritage Foundation has a 19-year plan. J Street's Jeremy Ben-Ami argued on April 14 that ending the subsidy preserves the alliance rather than ends it. The Heritage Foundation, Lindsey Graham, and Jeremy Ben-Ami do not agree on much. They agree on this.
The risks of drift are concrete. Operation Epic Fury and Israel's Operation Roaring Lion against Iran are still active. Industrial planning cycles require two-year visibility. If the successor framework is not signed by the end of fiscal year 2027, U.S. primes including Lockheed on F-35, Boeing on F-15IA and KC-46, and RTX across missile defense face an investment cliff. So do their Israeli counterparts. The Biden administration's May 2024 hold on heavy munitions during the Gaza campaign proved that aid creates leverage. A managed exit converts that leverage into joint capability. An unmanaged one turns it into mutual recrimination during a war.
Four things must happen now.
First, Washington and Jerusalem must sign the successor framework in a narrow timeline: open talks immediately, sign by the end of FY2027. The architecture is already visible: a managed glide path of FMF from 2028 to 2038, expanded missile defense co-development, a new joint envelope on directed energy, AI, autonomy, and counter-hypersonic capability, and partial conversion of residual FMF to loans on the Polish model. Each element has bipartisan support. Each replaces grant subsidy with capability investment.
Second, Congress must double the missile defense allocation from $500 million to $1 billion per year. That funding sits outside FMF, runs through the Pentagon's Missile Defense Agency, and produces capability; Iron Dome, David's Sling, Arrow 4, and Iron Beam that the U.S. military increasingly fields itself. It is the easiest defensible expansion of the relationship in a Congress allergic to new commitments.
Third, the State Department must reform International Traffic in Arms Regulations (ITAR) for tier-one allies. The United Kingdom and Australia secured expedited review under AUKUS. Israel deserves equivalent treatment. ITAR friction now impedes the alliances ITAR was designed to protect. A 30-day review commitment, paired with reciprocal arrangements at Israel's Defense Export Control Agency, would unlock joint development the current system slow-walks.
Fourth, Israel must build the institutional infrastructure for the post-aid era. A Defense Industrial Transition Authority inside the Prime Minister's Office, accountable for the 350 billion shekel implementation. A Defense Bond Law to ring-fence the funding from general debt issuance. An Israel Defense Export Credit Agency, modeled on the Export-Import Bank of Korea, to finance buyer-nation procurement of Israeli systems. South Korea graduated from $250 million in annual U.S. aid to a $14 billion defense export complex over fifty years using exactly these instruments. Israel proposes to compress the same transition into a decade. That requires institutional clarity Israel does not yet have.
The alternative is drift. Drift means the FY2028 cliff arrives without architecture. Drift means U.S. primes cancel investment in Israel-relevant capability because the order pipeline is uncertain. Drift means Israeli industry over-rotates toward European customers and atrophies its U.S. footprint precisely when the U.S. Army is buying more Israeli technology than at any point in the alliance. Drift means political coalitions on both sides, accelerationists in the Senate, sovereignty advocates in the Knesset, capture an issue that should be resolved by professionals.
The post-aid U.S.-Israel relationship will be stronger than the patron-client model it replaces. Joint development at the program level. Co-production at the industrial level. Preferential access on dual-use innovation. Operational integration through CENTCOM that has already proven itself against Iranian and Houthi missiles. None of this requires a $3.3 billion check. All of it requires a framework that does not yet exist.
The work begins soon. It must finish before the cliff.
Gregg Roman is Executive Director of the Middle East Forum and a former official in the Israeli Ministry of Defense.
