The Israeli government was meeting on Monday to vote on the 2013 austerity budget proposal after the security cabinet backed plans for a smaller-than-expected $840 million cut in defense spending.
The decision to reduce the defense budget by 3.0 billion shekels ($840.73bn) came after a marathon session by the seven-member security cabinet, which ran late into the night, and continued on Monday morning.
Ministers ended up overturning finance minister Yair Lapid's demand for a cut of 4.0bn shekels ($1.1bn), favoring a lesser cut with prime minister Benjamin Netanyahu stressing that defense funding was “essential to the security of Israel,” a statement from his office said.
But he pledged that the difference of a billion shekels “would not come at the expense of the public.”
Israel's newly-appointed finance chief had wanted to cut defense spending to help plug a budget deficit expected to be capped at 4.65 percent of gross domestic product this year and 3 percent in 2014.
His austerity proposals for 2013, which have already sparked an angry public backlash, includes an increase of 1.5 percentage points in personal income tax, one point in corporate tax and a one-point rise in VAT, together with a cut in family allowances.
On Saturday, thousands took to the streets of Israel's main cities to demonstrate against Lapid's austerity budget in an echo of the mass cost-of-living protests which swept the country in summer 2011.
Further demonstrations are planned for later this week.
At Monday's session, Netanyahu and his 21-member cabinet will debate the full budget proposal for 2013-2014 and will vote on it in a show of hands likely to take place later in the day.
“We will do this today and by the end of the day, Israel will have a budget,” Netanyahu said as the cabinet meeting got under way.
If the budget is approved, it must then be presented to the Knesset, or parliament, for approval by the end of July.
The measures will come into effect on August 1.