According to a Defense News report, Defense Minister Moshe Ya'alon has received government backing to purchase $2 billion in Pentagon-approved arms and aircraft, including the troubled V-22 tilt-rotor Osprey.
After months of internal dialogue in the Finance Ministry and negotiations with the Pentagon's defense contractors, Israel will enter into a US-approved deferred payment plan (DPP) to purchase the military equipment.
The Defense News report quotes US and Israeli officials saying Israel would only pay interest and fees until the current military aid package expires in September 2018, while the principal on the loan would be covered by a new aid package promised by President Barack Obama, which would extend the annual foreign military financing (FMF) aid until 2028.
When Obama visited Israel in March 2013, he committed to opening talks regarding an extension of the 10-year agreement signed in 2007 with his predecessor, President George W. Bush.
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Bilateral talks on the extension have only made preliminary progress according to US and Israeli sources, and a final aid package is unlikely to materialize before the end of Obama's second term, said the Defense News report.
While there are a number of variables that could factor in to the amount of aid Israel will receive, the Defense News report quotes former Israeli ambassador to the US, Danny Ayalon, as saying it was reasonable for the Israeli government to expect the extension of the foreign military aid, based on a wide-ranging congressional support for the Jewish State.
One Washington source told Defense News that the complicated financing arrangement required a "leap of faith" by all the actors involved in the deal, as the DPP approved means the US will pay defense contractors for the arms long before the new aid package for Israel is approved.
But the "leap of faith" was a step too far for some officials in the Finance Ministry, who were concerned that taking on debt without any guarantees of future aid was too risky.
It took a letter of intent to support the DPP from Washington to help the Defense Ministry push the arrangement through the Israeli government, according to Defense News.
With the DPP approved, Israel can begin the lengthy procurement process for the V-22 Ospreys, a principal part of the military aid offered by Secretary of Defense Chuck Hagel when he visited Israel in April 2013.
Hagel's plan to assure Israel's qualitative military edge was originally criticized for being premature, as most of Israel's FMF funding was spent on advanced F-35 jets, KC135 refueling tanker planes, and heavy troop carriers, according to the Defense News report.
Since Hagel's visit, representatives of the Israeli and American governments have been involved in negotiations with defense contractors, the Pentagon, and the State Department; when the DPP is finalized, sources from both countries expect Israel to become the first export customer for the V-22, said the Defense News report.
The Israeli procurement of the tilt-rotor plane could influence other players in the defense procurement industry to take the gamble on the transforming plane, said the report, as well as net the US economy more than $1 billion.