How Israel’s record budget will finance expanding illegal settlements

As Israeli lawmakers voted on the largest budget in their nation’s history from a fortified bunker early on Monday, one of the main aims of the $271bn spending bill became clear: a massive financial injection into extreme right-wing projects that analysts say will fundamentally alter the occupied West Bank.

Citing “national security” amid the ongoing war with Iran, the ruling coalition has bypassed legal frameworks to direct billions towards ideological goals, including supporting Israeli settlers establishing outposts and settlements in the West Bank, analysts say.

While the record defence allocation of $45.8bn has dominated headlines, the budget’s fine print also reveals a calculated shift towards entrenching the occupation and empowering the far-right elements of Prime Minister Benjamin Netanyahu’s government.

Israeli Finance Minister Bezalel Smotrich holds a map showing a settlement project during a news conference near the settlement of Maale Adumim, in the occupied West Bank, on August 14, 2025 [Ohad Zwigenberg/AP]

Financing the far right and the occupation

A key pillar of this strategy is the allocation of 400 million shekels ($129.5m) to the Ministry of Settlement and National Missions, which is the body that ultimately authorises illegal Jewish-only settlements and outposts on Palestinian land – usually after they have gone up.

Far-right Finance Minister Bezalel Smotrich, who is a settler himself – he and his settler movement believe they are biblically entitled to the land of the West Bank – was granted sweeping administrative powers over the occupied territory in 2023. He has been open about his opposition to any form of two-state solution, stating recently: “On the ground, we are blocking the establishment of a Palestinian terror state.”

Netanyahu, who himself has a long history of scuttling peace accords by allowing settlement expansion, has echoed this sentiment. “There will be no Palestinian state to the west of the Jordan River,” he said in a recent address, openly defying the internationally backed two-state solution, which is supported by the United Nations, the International Court of Justice, and nations including the United Kingdom, France and Australia.

Abdel Hakim al-Qarala, a Jordan-based professor of political science, argues that the Israeli government has successfully marketed the “Iranian threat” as a strategic smokescreen to push through this budget, including the financing for settlements. “This is not just a wartime emergency plan; it is a tool for imposing permanent realities on the ground,” al-Qarala told Al Jazeera.

Ihab Jabareen, a researcher specialising in Israeli affairs, describes the budget as an “engineering of sovereignty” – funds will ultimately be used to build a “parallel state” for settlers, which will enable a shift from temporary military control over the West Bank to daily civilian dominance.

This will happen via projects detailed in the budget, including building new bypass roads through Palestinian towns, effectively slicing them up; providing official protection for illegal settlement outposts using a 50-million-shekel ($16m) allocation for civilian security equipment, drones and cameras operated by the settlers themselves; silently displacing Palestinians by turning agricultural areas into permanent “chasing zones”, meaning Palestinians are constantly harassed and forced to leave without official deportation orders; and incorporating armed settlers into the state’s official civilian security apparatus.

This budget allocation comes against a backdrop of surging violence by settlers as well as Israeli armed forces’ raids on Palestinian communities across the West Bank, which have intensified since the onset of Israel’s genocidal war on Gaza in October 2023. While attacks on Palestinians in the West Bank have occurred for decades, UN data shows that settlers – often protected by Israeli soldiers – attacked Palestinians nearly 3,000 times over the past two years.

According to the UN, Israeli settlement expansions have now reached their highest level since 2017. Under the current far-right government, the number of settlements and outposts in the West Bank, including East Jerusalem, has risen by nearly 50 percent – from 141 in 2022 to 210 in 2025. Approximately 700,000 settlers, making up nearly 10 percent of Israel’s Jewish population, now live in these illegal settlements.

‘Money for survival’

To ensure the passage of this agenda, the government has had to secure its internal flanks. According to researcher Jabareen, Netanyahu sees the budget as an “insurance policy” for his political survival, trading state funds for such projects in return for the continued support of his coalition partners.

Right now, observers say, the immediate survival of the government hinges on maintaining the backing of the ultra-Orthodox, or Haredi, political factions – primarily the Shas and United Torah Judaism parties, which hold 11 and seven seats, respectively. Together, their 18 seats in the 120-seat Knesset make them unignorable, as Netanyahu has no governing majority without them, Jabareen points out.

In a move that has bypassed usual legal blocks, therefore, the coalition engineered a late-night manoeuvre on Monday by slipping a last-minute amendment into the “Arrangements Law” to redirect approximately $255m to Haredi yeshivas, traditional Jewish schools.

Jabareen describes these funds as “money for survival”, aiming to prevent religious factions from collapsing the government over an ongoing military draft crisis.

This specific funding had previously been frozen by Attorney General Gali Baharav-Miara following a June 2024 Supreme Court ruling that mandated the military conscription of ultra-Orthodox men, ending their decades-long blanket exemption. Redirecting reserve funds bypasses this freeze and, thus, Netanyahu has successfully shielded his government from collapse ahead of scheduled October elections, Jabareen said.

While trading state budgets for Haredi support is not a new trend – dating back to the 1990s – Jabareen argues that the “scale, timing, and political audacity” during a war are unprecedented.

An Israeli soldier tries to prevent the harvest at a Palestinian olive field near the illegal Israeli settlement of Elazar, south of Bethlehem in the occupied West Bank, on October 17, 2025 [John Wessels/AFP]

A divided opposition

The passing of this budget has also highlighted profound divisions within the Israeli opposition.

During their 13-hour marathon session, exhausted opposition lawmakers voted in favour of the coalition’s late-night amendment that provided $255m for the yeshivas. Jabareen says he believes this happened “mistakenly” because “the opposition manages public opinion, while Netanyahu manages parliamentary arithmetic”, outmanoeuvring them by slipping the funds into last-minute legislative amendments.

But ultimately, the opposition fails because it acts as a “rejection front, not a governing front”, meaning they are united against Netanyahu but deeply divided over any political alternative, Jabareen says. He notes that the bloc is plagued by personal and political rivalries between leaders like Yair Lapid, Benny Gantz and Avigdor Liberman.

In the wake of the passing of the budget, the anti-Netanyahu bloc turned on itself, observers say, publicly trading blame. Yair Lapid, leader of the Yesh Atid party, lashed out at rival opposition parties, accusing them of being keener to “bash Yesh Atid” rather than unite against the governing coalition.

In a lengthy statement on X, Lapid described the government’s manoeuvre as a “fraud” designed to trick the opposition and steal funds for “draft evaders” while the country is at war. Yesh Atid, he said, has filed an urgent appeal with the attorney general to halt the transfer of the funds. “The trick failed, the money won’t pass,” Lapid claimed, though there is no official confirmation yet that the funds have been permanently halted, and the broader $271bn budget has been signed into law.

By prioritising settlement expansion and far-right ideological projects, analysts warn that the spending bill will have severe long-term consequences.

“Every shekel placed in this path is withdrawn from any future viable Palestinian state,” Jabareen said. As a result, he warned, the budget will not just further entrench the rift in Israel between the secular public who are required to serve in the military and the religious right who receive state privileges, but it will also further destabilise the region.