October 1, 2009: Mainly because of the growing threat from Iran, Israel is increasing its annual defense budget from $12.64 billion to $13.8 billion (an increase of 9.4 percent). This will have Israel spending 6.3 percent of GDP on defense, the highest rate among industrialized nations (but low by Middle Eastern standards).
Israel faces Iranian threats from multiple directions. Iran itself has threatened to destroy Israel, and recently tested a multi-stage ballistic missile that can reach Israel. In response to that, Israel has built or bought several anti-missile systems. Iran is also developing a nuclear bomb, and already has chemical weapons.
Iran helped found, in the 1980s, and has subsidized ever since, the Hezbollah organization, a radical Shia group that controls southern Lebanon and has been making terror attacks on Israel for over two decades. Finally, Hamas, in Gaza, on Israel's southern border, has been receiving money, weapons and technical assistance from Iran for over five years.
It's not known of all this effort by Iran is part of some overall attack plan, but the threat is enough to compel Israel to reorganize, rearm and retrain its armed forces.