Shortchanged by the 2004 budget, the Israeli army is being forced to streamline its unwieldy structure and adapt to the changes in its strategic environment.

Accustomed to getting the lion's share of the Jewish state's resources, the army shared with social welfare the brunt of the cuts in the austerity budget passed late Wednesday.

With 32,4-billion shekels ($7,3-billion) excluding US aid, the defence ministry retains around 13% of the entire 2004 budget but feels it has been hard done by, describing the slashing of its resources as an "earthquake".

The army claims it was initially promised another four billion shekels and has warned that the extra cuts will affect vital operations and potentially harm the state's security.

But according to military expert Martin Van Creveld, Finance Minister Benjamin Netanyahu's otherwise decried ultra-liberal approach to solving Israel's economic woes heralds long-awaited and much-needed reforms in the army.

"It is natural that the generals try to hang on to their money but Netanyahu deserves the credit for forcing a string of changes in the military which make a lot of sense," the Hebrew University professor said.

"We have no conventional enemy left. We are at peace with Egypt, Iraq is gone and the situation with Syria is under control. What more security can a state require?" he said.

Israel has taken heart from recent regional developments, which have seen war clouds clear.

Saddam Hussein's regime was ousted by the US invasion of Iraq, putting pressure on its Syrian neighbour, while the nuclear threat from Iran and Libya also receded.

"A lot of people, probably including (Prime Minister Ariel) Sharon are still functioning on the mode of the 1973 Yom Kippur war.

We have built a military completely out of proportion," Van Creveld said.

According to military sources, the fat-cutting will first and foremost affect the heavy ground forces deployed to fend off a threat of conventional warfare which no longer exists.

Manpower management is the other major area of the military's organisation which needs to be revolutionised, doing away with the outdated model of the "people's army".

The army will have to follow patterns applying to the civilian population on pensions and thousands of career soldiers can also expect to be pushed towards early retirement.

"The manpower instituted by (former Defense Minister) Moshe Dayan in 1967 will have to change.

We have two armies in Israel, one of active soldiers and another one of retirees. And this is costing a lot of money," Van Crefeld said.

He explained that retiring soldiers would no longer be automatically entitled to a pension based on their latest wages and would have to feed a special fund throughout their career.

These reforms mirror a law, which was coupled to the budget approved by parliament for raising retirement age by at least two years for both men and women.

Netanyahu promised that if his attempts to alleviate the social welfare burden were successful, lower income groups would subsequently benefit from tax cuts, but the army looks set to undertake long-tern changes.

The Israeli army also plans to boost its technology department and within the next few years, several reservist units could be replaced by digital surveillance and reconnaissance devices.

Among the reforms also on the table are plans to shift "non-essential activities" of the army to private companies. – Sapa-AFP.