Finance Minister Netanyahu said Israel had been 'marking time'

In testimony to the Science and Technology Committee of the Knesset, the country's parliament, Finance Minister Benjamin Netanyahu said Israel was being overtaken in economic terms by the likes of Ireland and Singapore.

The fault, he said, lay in high taxes and an anti-business environment, which was blocking a return to earlier expansion which had been fuelled by the rampant technology industry.

"We have been marking time while Ireland, New Zealand, Singapore, Spain and Australia have leapt forward," he told the committee.

These countries, he said, had low taxes and little bureaucracy to hamper business - whereas Israel was groaning under the weight of an over-mighty welfare state.

"Israel's population grew 30% with the influx of immigrants from the former Soviet Union but the number of welfare recipients grew 600%," Mr Netanyahu said.

"This is madness."

Cuts

Welfare payments - to a significant extent swollen by support for the voter base of key parties in the governing coalition - are in line to be cut back.

Three years of fighting means defence spending has soared

The government is trying to stop the public purse from bursting at the seams, in the face of a budget deficit that some predictions say will hit 6% this year.

Sweeping public sector job cuts are also on the agenda, triggering an on-again, off-again strike which saw civil servants cut off telephone calls to Prime Minister Ariel Sharon's office.

Heavy spending on defence is also a big drain on the budget, following three years of renewed conflict between Palestinians and Israel.

Many observers say the ongoing security situation - and the politically-driven welfare spending - is more to blame than bureaucratic inertia, given the fact that several of the countries Mr Netanyahu named also have a reputation for red tape.

Some economic signs have been more encouraging for Israel in recent weeks.

Citigroup vice chairman Stanley Fischer, ex-deputy managing director of the International Monetary Fund, said Israel was ready to take off - but only once the peace process revived.

"I don't think you can grow fast without progress on peace," he told a conference in Tel Aviv on Monday after a meeting with Mr Sharon.

And the confirmation of loan guarantees from the US saw net foreign investment soar in September to $1.7bn after a $144m outflow the month before, as foreigners invested in government bonds backed by the US.