;2003 In 2003, Israel signed a formal letter of agreement, worth almost $20 million, to join the System Development and Demonstration (SDD) effort for the F-35 as a "security cooperation participant" (SCP). ;2006 The Israeli Air Force stated in 2006 that the F-35 was a key part of its recapitalization plans, and that Israel intended to buy over 100 F-35A fighters at an estimated cost of over $5 billion to replace their F-16s over time. Israel was reinstated as a partner in the development of the F-35 on 31 July 2006, after its participation was put on hold following the
Chinese arms deal crisis. On 16 November 2006, Yaakov Katz of the
Jerusalem Post reported that if no jet fighters were delivered to Israel between the last batch of F-16s in 2007 and the first F-35s in 2014 then the IAF would decline in numbers as older fighters wore out and were retired. ;2010 On 1 June, it was reported that
Rafael Advanced Defense Systems was developing smaller versions of the
Python and
Derby missiles for carriage within the aircraft, while
Israel Military Industries was developing a penetration bomb in the same configuration as the
Mk 82 500 lb bomb. However these were put off in order to rush the aircraft into operation as part of Israel's response to
Iran's nuclear ambitions. On 26 July 2010, Israeli Defense Minister
Ehud Barak said that he would insist on Israeli industrial participation, including local
electronic warfare parts, and weapons, during his trip to the United States. Barak submitted a request to the Israeli cabinet for 20 F-35s for $2.75 billion to be delivered starting in 2015. This included the costs of setting up local firms to assemble the aircraft and manufacture spare parts. The package was to be paid for with American military assistance. Former head of the IAF, retired Major General
Eitan Ben Eliyahu, called the American approval of the deal a key test of
Israel – United States relations. The F-35 deal was pushed through, instead of upgrading the Israeli Air Force's F-15s and F-16s, in a bid to maintain Israel's technological advantage over Arab states. This approach adheres to the Israeli principle that Israel ought to be the first country in the Middle East to receive new fighter aircraft. The IAF was sufficiently committed to this principle to override protests from the leaders of Israeli defense contractors, who claimed that the deal would damage them. A number of members of the Israeli
General Staff also criticized the high cost of the deal, which would reduce the funds available for investment in weapons for the land forces and navy. The total price tag confirmed by Barak indicated that each aircraft costs about $96 million, with further expenses on training, simulators, spare parts, and the building of maintenance infrastructure. The first squadron of 20 F-35 jets, from the first production series, only included a few Israeli-made systems. The United States agreed to allow the installation of more Israeli-made systems if Israel purchased further F-35 squadrons from later production series. To sweeten the deal, Lockheed Martin said it would buy parts and systems for the F-35 from Israeli companies at a cost of $4 billion. Defense Ministry Director-General
Udi Shani said that, apart from the jet's operational capacity, a significant factor in closing the deal included agreements that would include Israeli defense contractors in producing the F-35 for other clients.