Israel asks US for more money

In a statement from the Prime Minister's office, the Israeli government said its director, Dov Weisglass, and Finance Ministry Director-General Ohad Marani had held a "detailed discussion of the request" with US National Security Adviser Condoleeza Rice.

Israel is not saying how much money it is looking for, but the domestic media speculate that it could be as much as $14bn, of which $4bn would be military aid and $10bn loan guarantees.

About $2.9bn in grants and aid are routinely awarded each year,

Loan guarantees would allow Israel to borrow at rock-bottom rates. As long as Israel keeps up with repayments - and it has never defaulted, government officials are at pains to stress - the guarantees cost the US nothing.

Some observers have speculated that the US could ask for preconditions in the wake of the shooting by Israeli forces of a British United Nations official last week, but Israeli Finance Minister told public radio on Sunday that there would not be any strings attached.

Up and down

Israel's $100bn economy was booming in the latter years of the 1990s, buoyed by a flourishing technology sector driven and underwritten in part by the Israeli military.

By 2000, it was growing at 6% a year.

But all that changed with the Palestinian uprising of September that year, which began after now-Prime Minister Ariel Sharon toured the religious site in Jerusalem known to Jews as the Temple Mount and to Muslims as the Haram al-Sharif.

The tour by a known hardliner with armed guards was seen as provocative, and catalysed the following 26 months of violence.

Holes in the budget

Aside from the human cost, the economic damage has been immense.

Israel has since slumped into negative growth, its tax receipts dropping, defence budget creaking at the seams and foreign investment - and tourism - all but gone.

Unemployment tops 10%, while inflation is above 8% a year.

The situation for the Palestinians is even worse, as near-continuous blockades, destruction of property for security reasons and the steady expansion of Jewish settlements have wiped out most economic activity.