Israel Wants 40% More in U.S. Arms Aid : Assistance: The request comes as the Bush Administration is seeking to rein in the spiraling weapons race in the Middle East.

Israel, America’s combative ally and the largest recipient of U.S. aid, is asking Washington to boost military assistance by nearly 40%, from $1.8 billion to $2.5 billion a year.

The request was confirmed Thursday in a speech by Defense Minister Moshe Arens, whose proposal comes as the Bush Administration is seeking controls to end a spiraling arms race in a region that has had at least a war a decade over the last 40 years.

President Bush has also expressed displeasure with Israel over its stand on proposed Middle East peace talks as well as continued Israeli settlement of the occupied West Bank and Gaza Strip.

“That (aid) at $1.8 billion a year has been eroded considerably in real terms by inflation over the years. It must be--it should be--raised to $2.5 billion,” Arens told a Tel Aviv gathering of the Zionist Organization of America.

The $1.8 billion does not include interest that Israel earns by investing the cash in U.S. Treasury bonds until the money is used up. Under a unique arrangement, Israel receives American aid at once, rather than spaced out through the year.

Washington is also providing Israel more than $200 million in the coming years for research on the Arrow, a new antimissile rocket.

Arens, who met in Washington this week with Defense Secretary Dick Cheney and other officials, called on the United States to help develop Israel’s domestic military industry, partly through increased purchases of Israeli weapons and partly through investment in Israeli arms-building programs.

“If the United States is going to meet its commitment to ensuring Israel a quality advantage in weaponry, it must provide support for Israel’s defense industries, it must increase the level of foreign military funds . . . allocated to Israel,” Arens declared. Israel’s arms advantage has been jeopardized by U.S. supplies of weapons to the Arab world, he asserted.

Arens, an aeronautical engineer by training, has long campaigned to wean Israel from dependence on the United States by developing new defense industries of its own. A pet project of his, the Israeli-made Lavi fighter jet, died in 1987 when the United States, which funded the entire project, decided the warplane was too costly to develop.

Besides military aid, Israel receives another $1.2 billion in economic aid every year. The combined total of $3 billion in U.S. assistance amounts to about $700 for every man, woman and child in Israel.

The government of Prime Minister Yitzhak Shamir also plans to ask for U.S. guarantees on $10 billion in loans it needs to fund housing and jobs for Soviet immigrants.

The aid issue has become enmeshed in differences between Bush and Shamir over an American effort to get peace talks under way. Bush has hinted that aid for the immigrants might depend upon a freeze in settlements. It is far from clear how the Administration, saddled with budget deficits and peeved at Shamir’s hard-line policies toward Palestinians, will respond to a request for sharply higher military aid.

A call for a slight cut in overall aid was made last year by Sen. Bob Dole (R-Kan.) on the grounds that Israel gets too large a share of American foreign assistance. In resisting the move, Israeli officials said the costs of absorbing tens of thousands of new Soviet immigrants threatened to drain Israel’s defense budget. Dole’s proposal evaporated.

Among other nations receiving U.S. aid, Egypt is in second place with $2.1 billion a year. The United States has canceled $7 billion in Egyptian debt as a reward for Cairo’s sending troops to serve alongside the United States after Iraq invaded Kuwait.

Israel has been grappling with tight defense budgets for the last several years. Maj. Gen. Ehud Barak, the new army chief of staff, has pledged to slim down Israel’s military establishment by reducing reserve troops, mothballing planes and tanks and trimming waste.

At the same time, Israel is considering the need for more sophisticated arms to maintain its technological advantage over Arab neighbors. The Arrow, envisioned as part of the U.S. “Star Wars” space defense system, is meant to protect Israel from missile assaults on its cities.

Investing in such a project, even with U.S. help, has struck some Israelis as an expensive folly. But the inability of the U.S. Patriot antimissile rockets to keep Iraq’s Scud missiles from damaging Israeli cities during the Gulf War has propelled the program forward.

Israel also faces new battlefield conditions in which missile-firing helicopters could soon be a threat to its traditional superiority in tank warfare.

Arms control, especially in the Middle East, was a major element in Bush’s vision of a “new world order” that was to emerge from the victory over Iraq. In May, Bush proposed a ban on nuclear, chemical and biological arms production, an end to missile deliveries to the Mideast and a curb on sales of conventional weapons.

However, the Administration appeared to undermine its own position by unveiling massive arms sales plans to five Middle East countries and by delivering new jets for Israel. Saudi Arabia, another U.S. ally, has been supplying money to Syria to purchase weapons from a variety of suppliers, including China and North Korea.

Other countries are also putting forward arms-control proposals. At the meeting of major industrialized democracies later this month, Japan is expected to call for U.N.-supervised registration of conventional arms sales by all suppliers.

China has proposed reducing conventional arms and a ban on chemical, biological and nuclear stockpiles throughout the Middle East.

Chinese representatives are scheduled to meet in Paris next week with the four other permanent members of the U.N. Security Council to hammer out arms sale limits for the Middle East. The permanent members, which also include the United States, the Soviet Union, Britain and France, supply 90% of the region’s weaponry.

Israel opposed Bush’s arms-control plan because of its focus on nuclear weapons. Israel is the only Middle East country known to have atomic weapons and regards them as its ultimate deterrent in the face of larger, conventionally armed Arab armies.

Egypt welcomed Bush’s call and the Chinese proposal but only if they mean that no country will enjoy “an edge or special treatment,” an apparent reference to Israel.

Egypt, which is at peace with Israel, has requested new supplies of tanks, helicopters, jets and artillery from the United States.