Netanhayu is planning further tough budget cuts

The target of a 4% budget deficit is bigger than this year's 3% - but well short of the 6% shortfall that this year's spending plans are expected to produce.

During a press briefing broadcast on Israel Radio, Finance Minister Benjamin Netanyahu announced that he was aiming for 10bn shekels ($2.25bn; �1.4bn) in spending cuts, including 3bn shekels sliced off defence.

A huge hike in security costs as a result of the three-year Palestinian uprising has been one of the key causes for the economic trouble in Israel.

The country is now in its third year of recession, having suffered too from the aftermath of the technology bust - although Mr Netanyahu said he expects a return to growth this year amounting to 0.5-1%.

Slumping company profits and unemployment topping 10% means the tax take was down 9% last year, further straining the deficit.

Tightrope

If the spending cuts can be carried through, the budget may well hit its target next year.

But politically further sharp reductions in public spending could prove a serious headache for the government.

This year's 11bn shekel cutback - which mostly impacted public services and social programmes - triggered a general strike by public sector workers, and long arguments in the Knesset, or parliament.

Part of the problem is that some of the services which suffer from fresh cuts are those particularly focused on Israel's ultra-Orthodox communities.