The proposed $61 billion budget will next go before parliament for an initial vote. Numerous revisions are expected before it becomes law.

The bill is focused on slashing spending on the illegal settlements in the occupied West Bank and investing in Israel's more undeveloped areas such as the southern Negev and northern Galilee regions.

The current draft was drawn up by Benjamin Netanyahu, the former finance minister, and approved by the previous cabinet last August.

However, Netanyahu quit a few days later and attempts after that to get parliament approval failed. Parliament was then dissolved in late 2005 prior to Israel's March elections.   

Over the weekend, Warren Buffett, the US investor, also closed a deal to acquire the Galilee-based metalworks company Iscar for $4 billion, a move which will give the Israeli government a tax windfall of about $1 billion.

Israel's stock exchange hit an all-time high following news of the deal.

"He [Buffet] is not Jewish, nor is he a Zionist. The Israeli economy is such that he believes in it and supports it," Ehud Olmert, the Israeli prime minister, said on Sunday.