As for the espionage bit, Oberon puts it well. I'll just add: A nation that isn't spying on every other nation is not doing its job.
The US spies on all countries. The UK spies on all countries, Israel, China, Russia, Pakistan, India, Ghana, Chile, Germany, Poland, Norway, the Vatican, you name them, they all spy.
There are no innocent nations with a possible exception in some obscure mid-pacific island nations and suchlike.
When it comes to information gathering, pretty much anything goes, friends spy on friends and enemies alike, just don't publicly announce it.
As for that deal, from what I've gathered so far, the US will send mucho dollar to Israel on the condition that the money is spent on the US defence industry and not Israeli industries. That is very different from a condition that Israel can't buy anything weaponlike from their domestic industries. It seems to me at first glance that this deal is a way to arm Israel while pouring Govt money into US weapons industry. The conspiracy theorists can have a field day on this one: Who approached the Congress suggesting those dollars should all go to US industries?
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