Corinne and Robert Sauer, founders of the Jerusalem Institute for Market Studies, have taken up a proposal put forth in 2003 by Erez Raphaeli, an independent researcher. He contended that ending the nearly $5 billion in annual U.S. military aid to Israel and Egypt, as well as to Jordan, Lebanon, and the Palestinians, would actually improve the military position of Israel, the U.S.'s strongest ally in the region, and limit an arms race that the Sauers, both free-market economists, argue is essentially spiraling out of control.
If the military aid, part of $7.1 billion in grants that the U.S. awards each year in the Middle East, were to be withdrawn, the Arab countries would have difficulty replacing it, and Israel thus could downsize its military, argues Robert Sauer, who is also an economics professor at Royal Holloway, a college of the University of London.
The article goes on to note: "The $3.1 billion in annual U.S. military aid to Israel accounts for 18%-22% of that country's annual defense budget." This sounds large and it is large. But as I pointed out in my debate with Colonel Hunt on the John Stossel show, $3.1 billion is less than 1.5% of Israel's GDP.