The negotiations follow the breakup of the Jewish state's strategic alliance with Turkey, Greece's longtime rival, and come amid a major geopolitical realignment in the region as Turkey and Iran draw closer.

The Jerusalem Post reported Sunday that an Israeli delegation, including senior Defense Ministry officials, was in Athens to discuss "a new military partnership in the Mediterranean."

The Post gave few details but said the systems under discussion "could include weapons systems" for the Greek air force's fleet of 120 Lockheed Martin F-16s of various models.

A Greek military official concerned with defense procurement who was in Israel on a weeklong trip earlier in December said he was involved in the purchase of unmanned aerial vehicles. Israel is a world leader in that field.

The state-owned Israel Aerospace Industries, which manufactures UAVs, also specializes in upgrading F-16s, which the Greek air force uses extensively. IAI and other Israeli defense companies have developed world-class electronic systems for the F-16, as well as other U.S.-produced weapons platforms.

Israel's defense industries did lucrative business with Turkey's military, with an annual turnover of some $2.5 billion a year in recent years.

Greece is grappling with severe economic problems and is unlikely to generate the same level of sales as its archrival. But Greek Prime Minister George Papandreou, who boasts many Israeli business contacts, is committed to upgrading his country's armed forces and transforming them into the major bulwark of NATO in the Balkans and eastern Mediterranean in place of Muslim Turkey.

"One of the obstacles in the way of the deal is Greece's poor economy but officials said they were seeking creative ways for Greece to pay for the systems and enable the deal to materialize," The Jerusalem Post observed.

The deal has apparently been in the works since July when Papandreou visited Israel. Israeli Prime Minister Binyamin Netanyahu reciprocated the following month, the first Israeli leader to visit Athens.

This exchange followed a secret meeting in Russia between Netanyahu and Papandreou some weeks earlier. Diplomatic sources say the Greek prime minister initiated the approach because he saw an opportunity for Athens to replace Ankara in Israel's strategic worldview.

The Greek move wasn't directly linked to the split between Israel and Turkey, ruled by the Islamist party of Prime Minister Recep Tayyip Erdogan, which had been worsening for some months.

The rupture culminated May 31 when Israeli naval commandos killed nine Turks aboard the Turkish vessel Mavi Marmra carrying relief aid to the Palestinians in the besieged Gaza Strip.

Israeli sources say the blossoming relationship with Greece has been evolving since the summer of 2008 when Papandreou permitted 100 Israeli F-15I and F-16I strike aircraft to use Greek airspace to practice long-range flights and in-flight refueling.

These were widely seen as an Israeli rehearsal for pre-emptive strikes against Iran's nuclear facilities.

According to the sources, Papandreou allowed the Israelis to carry out mock attacks against powerful S-300PMU air-defense missile systems Athens bought from Russia in 2000.

At that time, the Israelis feared that Moscow was going to supply Iran with five S-300 batteries under an $800,000 contract signed in 2007, with others going to Syria. In the face of intense U.S. pressure, Moscow hasn't delivered these systems.

Israel's military and intelligence relationship with Ankara dates to 1949, when Turkey, a secular state, became the first Muslim country to recognize the infant Jewish state. In 1996 they signed a landmark military cooperation agreement. That resulted immediately in contracts worth $700 million to modernize Turkish military systems.

That allowed the Israeli air force to use Turkish airspace, bordering Iran, to practice long-range strikes that Israeli pilots cannot carry out at home because of Israel's small size.

With Turkey out the frame now, the Israelis are turning to other countries in Europe with which to coordinate joint exercises. Over the last year, Israel has conducted four exercises in Greece, most recently in October and November. These are being extended across the Balkans to Bulgaria, Serbia, Montenegro, Macedonia and Croatia.

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