Security chiefs had agreed to the regulations after the U.S. government “closed the taps of sensitive and essential cooperation on Israel” in the past few months, a senior Israeli defense ministry source said.
Washington, a long-time partner to Israel in arms and munitions sales, had in recent weeks imposed sanctions on the Jewish state after finding out it had sold Harpy Killer drones to China by freezing some development projects and delivery of equipment.
Israel will next week submit a letter of apology to the U.S. regarding the affair, officials said, while the United States will arrange supervision on sales of weapons and advanced technology overseas, which it sees as harmful to American national security.
The United States fears China is gaining more power and arms and could try to upgrade its military strength to settle territorial disputes or even threaten Taiwan, which seeks independence. Washington had demanded Israel confirm all its weapons sales with it ahead of time.
Israeli defense officials say the U.S. government's demand to have Israel confirm all its weapons exports with Washington could end up generating financial losses.
"This is an unprecedented demand," a senior security source told Yedioth. "This way, the caliber of Israel's weapons industry cannot function."
Another security source said the U.S. regulations are likely to hinder large weapons deals on the agenda with other countries, mainly in Asia.
"No country will want a third nation to know every detail about its weapons, especially not formally," the source said.
The current crisis stemmed from a recent upgrade of unmanned drones, developed for China by Israel Aircraft Industries.
Israel says it has merely supplied “support” for the drone system, as per the original contract of sale, but Pentagon sources say China sent spare parts to Israel to be upgraded, not merely maintained.
Itamar Eichner and Aryeh Egozy contributed to this report