The finance ministry announced that the Jewish state was behind only the United States, the European Union, Russia and Japan in 2002, with record sales of 4.18 billion dollars.

But in lumping all EU countries together, the Israeli figures ignore the fact that Britain and France typically rank in the top five, along with Asian exporter China, which was not even mentioned.

The main customer remained the United States, followed by unspecified countries in Asia, Europe and Latin America, with Africa lagging behind.

The upward trend looked set to continue in 2003, with a report in the daily Haaretz Thursday that Washington had lifted its objections to a one-billion-dollar deal with India for the sale of Phalcon airborne radar systems.

Washington had earlier approved the deal but then asked Israel to postpone it because of rising tension between India and Pakistan. Last month India expressed "deep concern" to visiting US congressmen that it was still on hold.

The Phalcon is an Israeli-developed long-range early warning and control system carried aboard a Russian Ilyushin-76 cargo plane. It has no US content, but Israel coordinates its defense sales with Washington.

Haaretz said the US administration is also considering lifting limits on Israel exporting anti-ballistic missiles, enabling India to buy the sophisticated Arrow missile system.

The paper said the change in US policy on Israeli weapons sales to India is to maintain "a stable balance of power between India and Pakistan", whose tensions have eased somewhat in recent weeks at US prompting.

Defence expert Major General Avraham Rotem said although annual variations in sales figures should be analysed with caution, global events and the orientation of Israel's military expertise provided a favourable context.

"The main reason for the growth in sales is that there are several relatively new markets around the world," he told AFP, citing the standoffs between India and Pakistan, China and Taiwan and the two Koreas.

"Fast changes are taking place around the world, especially since September 11, and many countries are reassessing the military balance of powers around them and feel the need to upgrade their systems," he said.

"This is where Israeli know-how sells itself the best. A large part of Israel's arms exports consists in technology to upgrade already existing and often non-Israeli military equipment," Rotem explained.

The largest contract in 2002 was one of 700 million dollars for modernising 170 tanks for the Turkish army, the ministry said.

While the world's top four arms exporters sell tanks, ships and planes, the bulk of Israel's sales comes from high-technology fitting and upgrading equipment.

"The war in Iraq stressed, among other trends, the importance of precise guided missiles and munitions, intelligence gathering systems etc, and as such, many Israeli weapon systems fall in these categories," a defence ministry spokesman said in a statement.

Rotem explained that although the increase in 2002 was spectacular, it did not necessarily reflect the growth of Israel's arms industry.

"All it takes is to sell a few very expensive items of military equipment and the figures for the year will be inflated considerably," he said.

"If the figures for 2003 are down from last year, it doesn't mean that several deals in the process of being negotiated will not materialise," Rotem said.

But with the huge Indian market opening up for Israel and its US ally still involved in vast military operations, 2003 results are expected to confirm the trend.

According to the Haaretz newspaper, the ministry is expecting at least 3 billion dollars in signed deals for 2003.

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