CORRECTED: U.S. signs $30 billion defense pact with Israel

(Shows in paragraph 12 that Bank of Israel governor officated at the signing ceremony, rather than sign)

By Dan Williams

JERUSALEM (Reuters) - The United States sealed a deal on Thursday to provide Israel with $30 billion in defense grants over the next decade, a 25 percent boost that Washington describes as strengthening a bulwark against Iran.

At a signing ceremony in Jerusalem, U.S. Undersecretary of State Nicholas Burns said the United States would help Israel maintain a military advantage over foes ranging from Iran and Syria to their proxies in Lebanon and Palestinian territories.

"There is no question that, from an American point of view, the Middle East is a more dangerous region now even than it was 10 or 20 years ago and that Israel is facing a growing threat. It's immediate and it's also long-term," Burns told reporters.

"The United States faces many of the same threats from the same organizations and countries as Israel does, and so we felt this was the right level of assistance."

The Bush administration said last month that it would also offer weapons packages worth $20 billion to Saudi Arabia and other Gulf states. Egypt stands to get $13 billion in defense assistance over the next decade, similar to present levels.

The assistance is designed to reassure Sunni Muslim Gulf nations of Washington's commitment to the Middle East despite its problems in Iraq, as well as to strengthen them in the face of the growing clout of Shi'ite Iran and its nuclear program.

Citing a need for regional stability, Saudi Arabia and Egypt are among Arab powers that have endorsed U.S.-led efforts to revive Israeli-Palestinian peace talks after Hamas, an Islamist group partly funded by Iran, violently took over Gaza in June.

PEACE PRIORITY

Burns said the new aid to Israel, which currently receives $2.4 billion in annual military grants, would not be conditioned on diplomatic progress or concessions though "one of the major priorities for our government ... will be to help push forward a peace agreement between Israel and the Palestinians".

The United States, Burns said, considers "this $30 billion in assistance to Israel to be an investment in peace, in long-term peace -- peace cannot be made without strength".

Israel has been overhauling its armed forces since it suffered surprise setbacks in last year's war against Lebanese Hezbollah guerrillas.

Assumed to have the Middle East's only atomic arsenal, Israel has vowed to prevent Iran acquiring the bomb. Iran denies its nuclear program has military aims.

"We have an exceptionally heavy defense burden," said Bank of Israel Governor Stanley Fischer, who officiated at the signing ceremony.

"The fact that the United States is willing to share a significant part of that burden ... is a critical element in the budget."

Israel is the only recipient of U.S. defense aid allowed to spent some of the money -- 26.3 percent -- on its domestic arms industries. Israeli officials say the funds are vital for developing technologies that are used to upgrade U.S.-supplied military hardware and guarantee a "qualitative edge".

Burns and Fischer said the sides had not finalized details on what weaponry would be supplied to Israel under the new deal.

(Additional reporting by Jeffrey Heller in Jerusalem)