Israel's Cabinet has approved drastic cuts in the national budget in an attempt to bring a mounting deficit under control. The reductions have hit defense spending and welfare payments the hardest.
The budget cuts of more than $2 billion were approved by a vote of 14-9, after a marathon 18 hour Cabinet meeting.
The most divisive point in the meeting was the size of defense spending cuts. The ministers agreed to trim the defense budget, but most of the burden of the cuts will fall on welfare and education.
Israel's Finance Minister, Benjamin Netanyahu, said the decision had been necessary to contain a budget deficit. The government says that, with the cuts, the deficit will be four percent of gross domestic product.
Mr. Netanyahu urged speedy approval of the budget by parliament to show international financial markets that Israel is serious about tackling its budget deficit problem. Israeli media reported that international investment firms had threatened to lower the nation's credit rating if the government did not demonstrate a greater fiscal discipline.
In a separate development, the U.S. administration is reportedly planning to reduce its annual $3 billion in loan guarantees to Israel. Reports published in Israel say Washington plans to cut the loan guarantees in response to Israel's continued expansion of Jewish settlements in the West Bank and Gaza Strip.
Further reductions are reportedly being considered by Washington to show disapproval of Israel's decision to build a security fence in the West Bank.
Meanwhile, Treasury Secretary John Snow is in Israel for talks with senior Israeli officials, including Prime Minister Ariel Sharon. Economic development in Israel and the Palestinian territories is high on Mr. Snow's agenda.
Mr. Snow is on a 10-day tour that will also take him to Jordan, Saudi Arabia, Afghanistan, and Pakistan, before he heads to Dubai for meetings of the International Monetary Fund and World Bank.