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Israeli anger at US over nuclear deal is a 'family dispute'

Reporting by Hadley Gamble, writing by Holly Ellyatt
Israel-US dispute kept 'within the family': Fin Min

Israel's close relationship with the U.S. is its most "strategic asset," Israel's finance minister told CNBC, seeking to tone down the rhetoric over the Iranian nuclear deal that threatened to strain the U.S. and Israel's close relationship.

Speaking to CNBC this weekend, Finance Minister Yair Lapid sought to allay fears that the U.S.-led nuclear deal with Iran, that promised to reduce international sanctions if Iran scales back its nuclear development program, had caused a schism between his country and its powerful U.S. ally.

"Maybe the most strategic asset we have is the kind of intimacy that we have with the United States government that we've had over the years," Lapid said. "I think it's ok to have disputes within the family as long we keep it within the family -- I think we're still in the frame of [being] within the family."

"We understand the U.S. means well and is doing its best under very complicated circumstances [but] we think we have earned the right to be listened to."

Israel has been scathing in its criticism of the interim nuclear pact reached between western powers and Iran in November with Israeli Prime Minister Benjamin Netanyahu calling the deal an "historic mistake."

(Read more: Iran deal first step towards comprehensive solution, Obama says)

The six-month interim deal struck in Geneva saw Iran agree to curb some of its nuclear activities in return for sanctions relief. International sanctions had been imposed on Iran by the United Nations (UN), U.S. and European Union following suspicions that the country was enriching uranium in order to make nuclear weapons, which Iran has long denied.

Finance Minister Lapid told CNBC that his country had "earned the right to be more concerned than anyone else."

"People have to remember that when they wonder why we have been so loud against this agreement with Iran. For us it's not academic or theoretical, it's existential. Here's a regime that's been loud about its wish and commitment to the destruction of Israel," he told CNBC in Tel Aviv.

(Read more: House GOP leaderslams Obama over Iran deal)

Israel does not only rely on the U.S. in terms of political diplomacy and protection. Lapid said that the prospect of the U.S. Federal Reserve tapering its monetary stimulus program could have an immediate impact in terms of Israeli exports, as almost a third of its products are sent to the U.S.

"It's a good thing we have this separator – 26 [percent of exports go] to the U.S., 30 percent to Europe, and the rest to Far East and rest of the world -- so if one area is collapsing and a second 2008 is happening, we are better protected against this.

"But the U.S. is the bigger sister and whatever happens there influences us. We were following [Fed Chairman Ben] Bernanke's policies and like the rest of the world we felt he was doing the right thing: restabilize and bring growth to the U.S. economy. And we are benefiting every time the American economy is doing better," he added.

Despite a dip in growth when the financial crisis hit in 2008, Israel has been nonetheless economically resilient during the financial crisis. In 2013, its economy is set to grow 3.6 percent, the Bank of Israel forecast in September, and by 3.4 percent in 2014.

The growth trend follows moves by the country's central bank to stimulate the economy. It lowered its key interest rate from 3.25 percent in 2011 to 1 percent, a rate held when monetary policy makers met in November.

The government has also struggled to contain the budget deficit, seen at 4.2 percent of GDP in 2012, and Lapid said he had inherited a "financial catastrophe" when he took up the finance minister post in March this year.

Lapid said there were no plans to reduce the healthcare, education or welfare budgets but there could be cuts to defense spending, a somewhat surprising move given Israel's fears over an Iranian attack. "We think there is some room for some cuts in defense ministry [but] not too much unfortunately, we live in a very shaky neighborhood."

He said he would now describe Israel as an "economy after catastrophe, that has come back from catastrophe." "It was man-made catastrophe. We took some hard measures to fix this. But I think it's fixed right now, or half way fixed. I'm hesitant because I want to be careful about this… but I think we are doing better."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt