South Korea has sweetened the pot in a bid to secure a hotly contested $1 billion contract for its T-50 Golden Eagle jet trainer for Israel's air force by offering to buy Rafael Advanced Defense Systems' Iron Dome counter-rocket system.

The Haaretz daily reported Tuesday that Seoul's proposal to acquire Iron Dome, added a new dimension to an earlier offer to buy "a significant quantity" of Israeli-made weapon systems if the Jewish state agreed to purchase 25-30 T-50s manufactured by Korean Aerospace Industries.

South Korean ambassador to Israel Ilsoo Kim said Israel's defense industry stood to gain contracts worth billions of dollars if the Golden Eagle was chosen over Italy's M-346 Master built by Alenia Aermacchi.

"Korea is spending $30 billion a year on defense and we have to upgrade our capabilities considering the changes around us," Kim told The Jerusalem Post, hinting at the scale of the contracts Israel could gain if it selected the T-50.

South Korea's military has shown interest in Iron Dome for some time and its addition to Seoul's package could swing the contract for jets to replace the Israeli air force's 200 aging U.S.-built Vietnam-era Douglas A-4 Skyhawks. Most of them have been mothballed.

Seoul is also keen to acquire surveillance satellites, upgrades for its combat aircraft, new unmanned aerial vehicles -- an Israeli specialty -- anti-tank missiles, new command-and-control systems and aid in developing an indigenous fighter.

Enes Park, KAI's executive vice president for marketing, said earlier this month that the planemaker was having talks with IAI, flagship of Israel's defense sector, and Haifa's Elbit Systems, one of the world's largest defense electronics manufacturers, about joint ventures that could involve lucrative deals for Israeli companies.

Seoul upped the ante on the contract after the Israeli air force recommended earlier this month buying the Italian training aircraft.

However, there is a strong lobby within Israel's defense sector that favors the South Korean jet. Some companies that would benefit from South Korean contracts have been pressing the Defense Ministry to select the T-50.

Seoul has complained for months that Israel was unfairly favoring Alenia Aermacchi.

Italy had been seen as the front-runner because of Israeli Prime Minister Binyamin Netanyahu's close relations with Prime Minister Silvio Berlusconi. But Berlusconi's resignation in November, hastened by a slew of political scandals, was thought to have undermined the Italian position.

Even so, the South Koreans complained Israel had initialed a preliminary agreement with Italy, which if it went ahead was expected to be part of what Haaretz termed "a wide-ranging trade deal" between the countries.

Amos Harel, one of Israel's leading defense writers, reported in Haaretz that seven months ago Defense Ministry Director General Udi Shani had indeed signed a preliminary deal with his Italian counterpart.

"The document, which was formulated according to demands submitted by Israel, expanded the deal beyond its original framework," Harel observed.

Italy reportedly pledged that if Israel signed with Alenia Aermacchi, "the two sides would sign additional deals worth more than $1 billion." These would include joint development of satellite projects, probably involving IAI, and the sale of UAVs to Italy.

The Jerusalem Post recently reported that Rome was discussing a possible barter deal under which Italy would get two AWACs aircraft from state-run Israel Aerospace Industries in exchange for the M-346 deal.

Seoul has indicated that if Israel buys the Italian trainer, all military procurement deals between the Jewish state and South Korea would be scrapped, Israel's media says. In recent years, Seoul has purchased Israeli defense products worth an average of $280 million annually.

The Post said that despite the air force's recommendation to buy the Italian M-346, "the deal is far from over."

The ministry's procurement department is scheduled to submit its final recommendation to Shani next month and a decision will be made shortly thereafter.

So it looks like a cliffhanger.

"Negotiations are still going on with the sides," a senior defense official said. "The Defense Ministry's working to obtain the greatest deal for Israel and the decision will be based on a variety of variables."