The goal of this paper is to provide an overview of R&D policy in Israel, and critically examine the policies currently in place as well as proposals to change them. We review in Part I the various programs of the Office of the Chief Scientist (OCS) of the Ministry of Industry and Trade in Israel, followed by a discussion of studies on the impact of OCS support, and an overview of the rise of the High-Tech sector in Israel with the aid patent data. Part II examines outstanding policy issues and suggestions for reform. It opens with a discussion of allocation schemes for the OCS Grants Program in view of a rigid budget constraint, and an assessment of possible departures from neutrality.' We then examine the payback system, the conditionality of production in Israel, the Magnet' program for the support of generic R&D, and related issues. Next we review the difficulties in setting a policy target for R&D spending, and lastly we ask whether government policy should perhaps be aimed also at the supply side (of the market for R&D personnel), rather than just keep subsidizing the demand side. Clearly, these policy issues are of relevance not just for Israel but for any economy contemplating active government involvement in R&D.
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