This has prompted some serious misunderstanding (a) of what Obama actually has said, and (b) what the US actually gets out of the deal.
This article from Bloomberg is a more fact specific and clarifies a bunch of stuff.
Contrary to what many progressives keep hoping, this is not about actually reducing the total amount of money the US would give Israel from 2020 to 2029. The provision holding up the deal is that right now, Israel gets to take 26% of this aid and spend it domestically. Obama wants to get rid of that provision. Instead of spending roughly 75% in the U.S., Israel would spend 100% in the U.S.
However, military aid to Israel is not merely an act of charity, as most imagine. In exchange, the U.S. gets a number of direct specific benefits.
First and foremost, of greatest interest to US defense firms and foreign policy, the US gets a veto on Israeli weapons sales regardless of whether those weapons are developed with US money or not. This is one of many reasons why Israel does not sell arms to the Kurds, to China, or places where US defense companies want to compete.
Item 2 is U.S, job stimulus albeit in the defense industry. Congress supports aid to Israel. It generally doesn't support aid to our other allies at anything approaching the same level. If Congress stops funding US aid to Israel, it's not like it frees up aid to go elsewhere. Progressives may cheer a blow to the military/industrial complex, but yanking about $2.80 billion (or whatever 75% of 3.5 billion is, I'm lazy right now) would have significant impact on jobs in the military contracting sector, without any guarantee to reallocating that money to something else progressives like, such as education or infrastructure development.
Saying that cutting the aid would save us money we can use elsewhere is a lot like saying that leaving the EU frees up money to pay for NHS. That is technically correct. If you aren't paying money to the EU, you can *theoretically* spend it on something else, like NHS. But nothing guarantees that will actually happen. You can always just not spend the money. Likewise, the claim that the US sends $3.5 billion/yr to israel we could spend here on other stuff is certainly true. We *could* spend it on other stuff. But I doubt we will. So that money just gets withdrawn from the economy as a whole.
If you're morally opposed to the US giving aid to Israel, then the economic impact may well be worth it -- just like those who hate "the bureaucrats in Brussels" think the current financial pain is worth it. But moral choices are only moral choices when you actually understand the consequences and accept them.
3. The US benefits from a lot of technology transfer from Israel as a product of the 26% of money spent in Israel. Under the terms of the funding agreement, the US gets access to the intellectual property and research the money funds. This is why things like "stuxnet" are joint US/Israel projects and why the U.S. now has Iron Dome technology. (Iron Dome was funded from a different pot, to make Israel feel more secure after the Iran deal, but it's the same IP clause) . Sure, the US is no slouch on its own. It's not like it needs Israel to do advanced weapons research. But the technology and research transfer from Israel to the US (as well as the joint testing and general military and intelligence cooperation) are benefits to the US and underscore the point that this is not some charitable gift where the US gives and Israel takes.
We now cross over into some more speculative questions.
1. What would ending US aid do to stability in the region? It is generally assumed on the left that because all the Arab states hate Israel, that US ties to Israel are a negative for the US in the region. Additionally, while it is less fashionable to blame all regional instability in the region on Israel, it is still a fairly widespread belief on the left that solving the Israel/PA conflict (which means getting Israel to stop occupying and oppressing Palestine with its apartheid state, etc.) hence anything that hits Israel in the nuts is good for regional stability.
Heck, I saw one Facebook meme actually suggesting that the US should arm the Palestinians instead. This will lead to regional stability? But I digress.
I am a lot less sure that cutting US military aid has a stabilizing effect. In fact, I think it is much more likely to have a destabilizing effect -- for two reasons. First, once the US loses leverage over Israel, it's gone. Israel (as noted above) is a weapons exporter and developer. Loss of aid will certainly hurt, but it will not seriously degrade Israel's military capacity. It will, however, enhance the ability of Israel to make regional alliances with countries and regimes the US does not like, and make arms deals the US would view as destabilizing. This includes, but is not limited too: Kurds, Azerbaijanis Georgians, Ethiopia, Puntland in Somalia, Southern Sudan, Eritrea, China, and lots of folks in the South East who are very anxious about the situation over there and very eager to buy advanced military weapons.
"Why how horrible!" Progressives have typically responded. "That would just prove Israel are awful people." So? Is this about regional stability or re-enforcing your moral superiority. If you are willing to have the region become less stable, and have more people die, because it makes you feel morally superior -- cool beans.
2. Would the U.S. be closer to Arab allies? It is always believed that the relationship with Israel is the U.S.’s albatross in the Middle East. Recent evidence from the region suggests that the new generation of leaders, at least, finds a rupture in the Israel/US relationship disturbing and destabilizing, not comforting. If you study the region outside of Israel, you will find that the relationship of the local regimes with Israel and the U.S. is more complicated for several reasons.
First, it is an article of faith in the region that the U.S. is Israel’s unshakeable friend. If the U.S. can decide to through over Israel in favor of new friends – like Iran or the PA – why wouldn’t they also throw over Saudi Arabia? Or Egypt? Or Bahrain? The monarchs and military men ruling these regimes are not fans of change and uncertainty. First the U.S. discards Mubarak, now Israel. If you are the Saudis, you are going to want to establish your own military and move quickly to tamp down Iran because US reassurances on how they will protect your regime – whether from external threat or internal revolution – are no longer reliable.
Again, progressives may well say “good.” These are anti-Democratic regimes that should also be held accountable for their oppressions. Awesome sauce. But that outcome directly conflicts with the conventional wisdom, so it’s probably a good idea to think about it so as not to be surprised.
Second, the Arab regimes count on the US as a stabilizing and limiting influence over Israel. After 65 or so years of Israel being a US ally/client state in the region, the new generation of Arab rulers have an expectation of how this is supposed to work. They expect to be able to pressure Israel indirectly through the US (another thing most people in the US don’t understand is just how different the new generation of leaders in the Arab world is from the previous generation). Sure, most of the regimes publicly hate Israel, and many find it useful to stir up anti-Zionist/anti-Jewish sentiment from time to time. Also, there is a harcore streak of real anti-Semitism that has taken root over the last 100 years in the Middle East that verges on bug-fuck crazy (which I will not get into now).
So I don’t want people to think that all is hunky-dory or that Saudi Arabia would weep if the Palestinians did manage to sweep the Jews into the Sea. But it is simply not the case that the US distancing itself from Israel automatically generates positive returns either with Arab regimes or with the “Arab Street.” The regimes hate the uncertainty and the possible implications about the stability of their own relationships with the US. The Arab Street is never going to believe anything nice about the U.S.
To wrap things up, ‘cause this got way too long.
(a) Obama is not proposing cutting the dollar amount of aid to Israel. He simply wants to stop subsidizing the Israeli military/industrial complex and use that money to subsidize our domestic military/industrial complex.
(b) U.S. military aid to Israel is not free money to Israel from which the U.S. gets nothing. It’s complicated. Whether we get $3.5 billion worth of benefit is something to debate, but it’s not flushing $3.5 billion we would spend elsewhere down the drain, either.
(c) It’s not anywhere near certain that cutting the aid budget would have a positive impact on the region, or even on the PA.
None of which is a killer argument for those who don’t like Israel’s policies. Lots of people think we should cut off aid to countries that we don’t feel abide by human rights standards, so if you think Israel is not behaving properly and therefore think the U.S. should punish it, cool. Just don’t go all “Leave Campaign” and act like there are no consequences.