"Grants started to replace loans in 1974. The U.S. government shortly afterwards started to permit Israel to spend twenty-six percent of the annual military grant on purchases in Israel—a unique arrangement, since by law recipient countries must spend all of their Foreign Military Financing in the United States. The result of this has been the build-up of a large Israeli military industry. This industry often relies on U.S. technological inputs, and the United States forbids Israel from manufacturing crucial heavy weaponry, such as fighter jets, in order to maintain control over Israel.
It trusts Israel—a settler-colonial state—with its own weapons industry since the chances of a peoples’ revolt amongst the dominant Jewish sector of the Israeli population is slim-to-none; the weapons will not be turned against the Israeli elite, let alone the United States, as they might one day in Arab countries where revolt is more likely. But it trusts the Israeli elite only so far—for that reason it maintains a monopoly on many of the production lines the Israeli army needs, in order to maintain a veto over Israeli foreign policy.
Furthermore, as the Times suggests, public U.S. military aid can be embarrassing for the Arab states. Several of these states have pretended to be at war with Israel even while maintaining friendly terms with the United States, Israel’s main patron. Although this dynamic was less of an issue after the Camp David Accords with the Anwar Sadat dictatorship in Egypt in the ‘70s, the 1994 peace treaty with Jordan and increasing ties between Israel and the Gulf States, Israel’s colonial repression of the Palestinians continues to be an issue for the surrounding Arab populations. Hence the need for some subterfuge as to who’s actually building Israel’s weapons, and indeed for the United States’ commitment to the peace process—a shadow-play meant mainly for the consumption of the Arab popular classes.
Earlier U.S. military grants, in the 1970s, often went to subsidiaries of U.S. corporations based in Israel, which devoted a significant portion of its budget to developing a trained and educated work-force, capable of aiding in technological development and working in highly-skilled positions in the arms industry.
Later U.S. military grants to Israel were often a quid pro quo, as Israel increasingly took on the work for which the United States could not publicly take responsibility, given popular unease in the States over aid to fascist dictatorships. As the International Jewish Anti-Zionist Network note in their well cited report, Israel’s Worldwide Role in Repression,
In the 1970s, Israel armed the brutal military regime of the Argentinian Junta that imposed seven years of state terrorism on the population, including the torture and “disappearance” of an estimated 22,000-30,000 left-wing activists, trade unionists, students, journalists and other alleged anti-regime civilians."