U.S. Aid and the Financing of Arms Purchases for Israel

Washington’s routine announcements of multi-billion-dollar “arms sales” to Israel have long invited a closer look at the money trail. Under the Foreign Military Financing program, the bulk of the capital that enables those transactions originates not from Israeli budgets but from annual U.S. appropriations. The result is a financing structure that functions more as a grant-financed procurement channel than a conventional commercial exchange.

Congress has sustained a baseline of $3.3 billion in FMF grants each year under the 2016 Memorandum of Understanding covering fiscal years 2019–2028, plus $500 million for joint missile-defense work. These funds are disbursed as a lump sum into an interest-bearing U.S. account shortly after appropriation. Israel then draws them down to acquire U.S.-origin defense articles, services, and training, primarily through the government-to-government Foreign Military Sales system and, uniquely among most recipients, through Direct Commercial Sales contracts as well.

In practice, the arrangement creates a closed fiscal loop: taxpayer dollars appropriated as aid re-enter the American defense industrial base as payments to contractors. Official notifications of proposed sales routinely list “Foreign Military Financing” as the funding source. While Israel does make some purchases with its own national funds, those Direct Commercial Sales represent a smaller share of high-value systems; the dominant pathway for major platforms remains FMF-supported.

Supporters of the system emphasize strategic returns: the aid helps maintain Israel’s qualitative military edge, generates steady demand for U.S. production lines, and reinforces interoperability with a key partner. Critics counter that labeling the transactions “sales” can blur the degree to which American fiscal resources underwrite them, complicating public understanding of both the scale of assistance and the accompanying oversight mechanisms. Export-control laws and congressional notification thresholds still apply, and the U.S. retains legal authority to monitor end-use.

A distinctive feature of Israel’s FMF package—the ability to spend a declining share on Israeli-origin equipment under Off-Shore Procurement—has been phasing toward zero by 2028 under the existing MOU. By that point, virtually the entire annual grant is expected to flow to U.S. suppliers. Supplemental appropriations during periods of heightened conflict have layered additional funds atop the baseline, but the core architecture remains grant-financed procurement rather than pure commercial purchase. As of April 2025, the United States maintained 751 active Foreign Military Sales cases with Israel valued at $39.2 billion.

As debates over the next MOU and the proper terminology continue on Capitol Hill, the factual mechanics are clear: most of the high-value defense articles transferred to Israel under the “arms sales” rubric are paid for with U.S. appropriated funds that cycle back into the American defense sector. Whether that structure is best described as commercial exchange, strategic subsidy, or something in between remains a matter of policy framing rather than accounting ambiguity. For further detail on the distinction between FMF-funded transfers and pure commercial purchases, see analyses such as those from Responsible Statecraft and the Israel Policy Forum.