Israeli tanks are positioned near the Israel-Gaza border, in Israel, March 18, 2025. Photo: REUTERS/Amir Cohen

Israel will raise defense spending by 42 billion shekels ($12.5 billion) in 2025 and 2026, the finance and defense ministries said on Thursday, citing the country’s security challenges.

The budget agreement will allow the Defense Ministry to “advance urgent and essential procurement deals critical to national security,” the ministries said in a statement.

Finance Minister Bezalel Smotrich said the new defense budget “fully covers the intense fighting in Gaza, alongside comprehensive security preparations for all threats — from the south, the north, and more distant arenas.”

Israel‘s military costs have surged since it launched its military offensive on Gaza following the deadly attacks by Hamas terrorists on Israel on Oct. 7, 2023.

Since then, Israel has also fought Hezbollah in Lebanon and waged a 12-day air war with Iran, and carried out airstrikes in Syria this week after vowing to destroy government forces attacking Druze in southern Syria and demanding they withdraw.

Over the past 21 months, Israel‘s missile defense systems have been working almost daily to intercept missiles fired by Hezbollah, Iran, and Houthis in Yemen.

Current annual defense spending is 110 billion shekels – about 9 percent of gross domestic product – out of a total 2025 budget of 756 billion shekels.

The extra budgetary funding “will allow the Defense Ministry to immediately sign procurement deals for the weapons and ammunition required to replenish depleted stocks and support the IDF’s ongoing operations,” said Amir Baram, director general of the Defense Ministry.

It would also enable the defense establishment to initiate development programs to strengthen the Israel Defense Forces’ qualitative edge for future systems, he said.

MULTIPLE SCENARIOS

Defense Minister Israel Katz said the funds would allow Israel to prepare for multiple scenarios since “enemies are openly declaring their intent to destroy us … For this we require complete military, technological, and operational superiority.”

Separately, the Defense Ministry said it had signed a deal with state-run Israel Aerospace Industries (IAI) to accelerate serial production of Arrow interceptors.

The Arrow, developed and manufactured in cooperation with the US Missile Defense Agency, is a missile defense system designed to intercept and destroy ballistic missiles.

The Arrow had a high interception rate during the conflicts with Hamas and Iran. As part of the deal, IAI will supply the military with a significant additional amount of Arrow interceptors.

“The numerous interceptions it carried out saved many lives and significantly reduced economic damage,” Baram said.

On Wednesday, the ministry signed a $20 million deal with Israel Weapon Industries (IWI) to supply advanced machine guns aimed at significantly enhancing the IDF ground forces’ firepower capabilities.

($1 = 3.3553 shekels)