Israel PM, Finance Minister Agree Defense Budget Hike

Israeli Prime Minister Benjamin Netanyahu and his finance minister patched up a very public budgetary rift on Wednesday, agreeing to boost defense spending, after a bloody and costly Gaza war.

Netanyahu's office said the defense ministry would get $1.9 billion-$2.2  billion (1.5 billion-1.7 billion euros) to defray costs from the 50-day air, sea and land offensive against Palestinian militants in Gaza and an extra $1.6 billion in next year's budget, for a total $15.6 billion.

Since shortly after the fighting ended on August 26, Netanyahu and Defense Minister Moshe Yaalon have fought for a big hike in defense spending against fierce resistance from Finance Minister Yair Lapid.

The conflict cost more than 2,100 Palestinian lives and 73 on the Israeli side.

Yaalon says the direct military cost was more than $2.5 billion while the finance ministry reportedly reckons the true bill was around $1.6 billion. 

Wednesday's statement said the deficit target for 2015 would be 3.4 percent of Gross Domestic Product, up from an original target of 2.5 percent.

Israel's central bank warned on September 2 that a deficit above 3.0 percent "will clearly signal a stepping back from the commitment to maintain fiscal discipline, and increases the risk of losing credibility."

The statement from Netanyahu's office pledged that taxes would not rise to finance defense spending.

Lapid last week threatened to quit the coalition government if taxes go up.

Netanyahu has called for cuts of two percent from every government ministry other than defense, to raise about $561 million toward the bill.

The biggest reductions are to be made to education, welfare and social services and health.