Israel expected to heed US urgings to abandon fighter project. US, which foots most of the bill, says jet eats too much defense aid

A meeting of the Israeli Cabinet this weekend will rate unusual attention by the Reagan administration. The Israelis are to decide whether to proceed with the development of a high-performance fighter jet designed to rival the best produced in the United States. But the Reagan administration calls the project a boondoggle that will siphon US aid from more pressing Israeli defense needs.

During the past week, senior US officials have pressured the Israelis to abandon the Lavi jet fighter project. Secretary of State George Shultz sent a private message to Israeli Cabinet officers asserting that the Lavi project was one neither Israel nor the US could afford.

``Both the US and Israel estimate production cost of a magnitude which could not be funded within our security-assistance program to Israel without crowding out other important projects,'' State Department spokesman Charles Redman adds.

In an effort to sweeten a decision to abandon the project, the US has offered some important financial concessions.

During a recent US visit by Israeli Defense Minister Yitzhak Rabin, Defense Department officials reportedly promised to do their best to help cover costs associated with the termination of the project and to sustain current levels of aid for foreign military sales (FMS) to Israel. That means reallocating for other purposes the $550 million in FMS now earmarked for the Lavi program.

More important, Israeli officials say, the US has agreed to increase ``offset'' expenditures in Israel, an arrangement by which the US will purchase $150 million in Israeli equipment - mostly electronics and avionics - during each of the next two years.

The offset provision is considered particularly important to Israel because of the need to sustain employment in Israel's high-tech industries. According to an Israeli official, some 2,000 scientists and engineers have emigrated to Israel from the West to work on the Lavi project. The offset agreement could help prevent a reverse brain drain resulting from the expected decision to scotch the Lavi program.

Despite the fact that the Lavi has been a major employer and a source of enormous national pride in Israel, the project has been a drain on the Israeli economy, including the defense budget.

``The Lavi has been the biggest enemy of the Israeli Army,'' says one Israeli official, who notes that a disproportionate amount of US aid has been devoted to developing the controversial fighter aircraft, which is the rough equivalent of the popular US-made F-16.

The US has invested $1.5 billion in the Lavi program, which so far has produced two prototype aircraft. But enthusiasm for the project has largely been confined to Capitol Hill, where a small group of House members has kept it alive.

From the start, the Reagan administration has been skeptical. One State Department official says the Lavi could absorb close to half of the annual $1.8 billion in US military aid earmarked for Israel, compromising other defense programs. For far less money, Israel could buy comparable US F-16s.

``To continue with the Lavi means having to cut out some other high priority items from [Israel's] defense budget,'' comments this official. ``That could hurt Israel's qualitative defensive edge.''

Israelis have become emotionally attached to the Lavi project, seeing in it a symbol of the nation's military independence. ``For everyone here it is a very sad moment,'' says an Israeli official of the fact that the days of the Lavi project may be numbered.