Arms industry is Israel's top earner.

Surrounded by Arab nations, Israel has often stressed the importance of maintaining its military defence systems, including a home grown arms industry, for its survival. However, over the years the role of this sector has developed way beyond the purely defensive. DEXTER SMITH reports on the growth of Israel's multi-billion dollar arms industry and the Jewish state's determination to stay ahead of the game.

There are those who would say Israel's defence industry has grown out of war time necessity and peace time expediency. The country operates on the premise that in battle - even if one has allies - one needs to be largely self reliant, at least when it comes to maintaining and adapting arms to suit fast evolving tactical requirements.

The industry has grown from being a supplier of small arms, light armour and practical equipment refinements to offering complete major weapons systems and defence equipment upgrade packages. It is an industry that has come of age - an industry that has given the Israeli Defense Forces (IDF) the edge in conflict, and the Israeli economy a high tech lead which has made the country the most technologically advanced in the Middle East.

In conflicts like the 1973 Yom Kippur War and the 1982 Operation Peace in Galilee invasion of Southern Lebanon, Israel's military-industrial complex introduced the world to the offensive use of chaff and flare countermeasures to distract missiles from an attacking naval formation; the added protection afforded tanks by reactive armour; tandem warheads for missiles to defeat reactive armour; and the use of unmanned air vehicles for reconnaissance and targeting.

Israel's defence industry also put that country into the space age - its aerospace companies, who cut their teeth on defence contracts, made Israel in 1990 only the 8th country in the world to launch its own satellite of indigenous design and manufacture (Offeq), using its own launcher (an indigenous Israeli Aircraft Industries three-stage rocket, Shavit).

Israel has become one of the world's top 10 defence manufacturing nations by volume; its defence industry is the largest manufacturing employer in the country and now the biggest single earner of industrial exports. Israel's defence ministry export agency, Sibat, says Israeli defence contractors are currently negotiating US$10bn worth of exports, (ie. foreign defence sales). Today, Israeli defence companies are on about half of all the major weapon system upgrade programmes currently underway that have been open to international competition.

Moreover, Israel has developed new weapons, like the Python-4 air-to-air missile made by Rafael, which are considered to be world leaders in their category. Python-4, which is operational with Israeli Air Force F-15 and F-16 fighters (and which has also flown on F5s and F-18s) is widely acknowledged as the world's most advanced dog-fighting missile available today. It made its international debut at the Paris Air Show this June, and company officials said it already had its first export customer (who they would not name - probably the US in small numbers); it is undergoing evaluation by the Australian Air Force for their F-18s, and Rafael are talking to Turkey, Chile and Singapore about it.

Python-4 is the first of the new, so-called 4th-generation agile missiles; it has a unique aerodynamic design with 18 moving control surfaces, including rolling fins - capable of high-G turns at speeds up to Mach 4, quite simply it can outmanoeuvre anything else in the air. Python-4 is used in conjunction with a helmet-mounted display sight, such as that which the Israeli defence electronics company Elbit have developed for the Israeli Air Force - the ability of the pilot to direct the missile by moving his head through 180 degrees dramatically increases the range of Python-4's potential angle of attack. An F-16 with Python-4 beats a MiG-29 with the latest Russian AA-11 missile in simulated combat two out of three times.

The Israeli defence industry has been highly successful in penetrating US markets largely it has to be said - with the aid of numerous off-set promises made to Israel by US defence contractors keen to take advantage of the US$3 billion worth of military aid paid annually to Israel by the US Administration. The fact that companies like Elbit, however, provide the digital map on the US Air Force's latest F-22 fighter, integrated helmet display sights for USAF F-15s, and fire control computers and turret stabilisers for the US Army's Bradley A3 armoured fighting vehicle, illustrates that their equipment is of the highest standard for critical functions.

Over the last few years, Israel has been particularly successful in developing a supplier relationship with the Turkish military community. The key breakthrough was the Israel Aircraft Industries (IAI) upgrade of Turkey's fleet of 54 F-4 fighters under a deal worth US$630 million, including new avionics and an initial supply of 50 Popeye I air-to-ground missiles made by IAI.

Even the election in June 1996 of Necmettin Erbakan as Turkish Prime Minister at the head of an Islamist Welfare Party government did not end Turkey's defence links with Israel. During the election campaign Erbakan said he would sever such links, asking rhetorically: "Did not the Jews bomb our Muslim brothers in Lebanon?", but by September 1996 he was persuaded to let a Turkish-Israeli defence technology agreement go through - the agreement made a formal framework for honouring technology transfer promises made under the F-4 upgrade contract, including a co-production accord for the Popeye II missile, and it enhanced Israeli chances on the upcoming Turkish F-5 fighter upgrade programme, plus future upgrades of Turkish F-16s.

Defence contracts with Israel almost became a badge of honour for the Turkish military in their campaign to keep Turkey on the secularist path set by Ataturk the "Father of Modern Turkey". Eventually, under pressure Erbakan was forced to resign after just one year in office. Turkey is now looking very seriously at the upgrade that Israel Military Industries did on Israel's older M-60 main battle tanks, including replacing its 105mm gun with a 120mm version, adding a new fire control computer and installing reactive armour on exposed parts of the hull and turret. Turkey has 1000 US-built M60 A3 tanks that it wants to upgrade. A contract is imminent and IMI is the front runner.

This programme, if accompanied by successful technology transfer, could also be a foot in the door for Israel to bid for an initial purchase by Turkey of 500-800 new-built main battle tanks - Turkey wants to procure 2000 of these by 2010. If Israel can sell its Merkava Mk3 MBT to Turkey it will have beaten the best from the rest of world for the biggest tank deal going, and have gained its first export customer for the Merkava, built by IMI with electronics from Elbit and a powerpack (engine) from another Israeli company, Nimda, who have just won a US$250 million order to install new powerpacks in 250 T-72 tanks belonging to the Czech Republic Army - this upgrading of the engines giving each tank 40% more power.

Israel is now seeking to exploit defence technology co-operation agreements with Croatia and South Korea; it has already penetrated South American air force markets where just one Israeli defence company, El-Op, claims to have US$100 million worth of current contracts, providing a compact Head-Up Display (HUD) for the Argentine Air Force's Pampa trainer (also with a new nav/attack computer from Elbit), El-Op similarly providing a HUD for Chile's F-5 upgrade and for 80 Brazilian Air Force AMX fighters, as well as a laser range-finder/designator upgrade package for Brazil's ALX combat trainer, including systems for 100 new-build ALX trainers.

Overall, however, Israel's defence contractors are being told by their Defence Ministry Director-General, Ilam Biran, that they must co-operate rather than compete, particularly in export markets. He is forging a link between Israel's two main electronic warfare systems companies, Elta and Elisra, saying their co-operation in a joint venture would assist any future purchase by Israel of advanced US fighter aircraft. Mr Biran also wants to bring IAI and Elbit closer together to jointly attack a big potential export market for MiG-21 upgrades, which Elbit has dipped into in Romania. Nevertheless, perhaps the greatest prize of all in terms of future export business for Israel's defence companies is in respect of upgrades to the F-16 - the biggest selling fighter aircraft of all - here Israel's domestic programmes have given it a technological edge and a competitive advantage as US manufacturers (undergoing radical consolidation and downsizing) have switched their attention to newer aircraft in development like the F22 and the Joint Strike Fighter.