<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>3
<FILENAME>exhibit-1.txt
<DESCRIPTION>EXHIBIT 1
<TEXT>

                                    EXHIBIT 1
                                    ---------

                               ELBIT SYSTEMS LTD.
                               ------------------
                               MANAGEMENT'S REPORT
                               -------------------
         FOR THE THREE AND NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003
         ------------------------------------------------------------


         This  report  should  be read  together  with the  Company's  unaudited
         financial  statements for the quarter ended  September 30, 2003 and the
         Company's Form 20-F for the year ended December 31, 2002,  filed by the
         Company with the U.S.  Securities and Exchange  Commission and with the
         Israeli Securities Authority.

A.       THE COMPANY'S BUSINESS OVERVIEW
         -------------------------------

         Elbit  Systems Ltd.  ("Elbit  Systems")  and its  subsidiary  companies
         (together  the  "Company"  or  the  "Group")  operate  in the  area  of
         upgrading existing airborne, ground and naval defense platforms and are
         engaged in projects  involving  the design,  development,  manufacture,
         integration  and  marketing  of advanced  integrated  defense  systems,
         electronic  systems,  electro-optic  systems and  products and software
         intensive  programs and products for the defense and homeland  security
         sectors.  In addition,  the Company  provides support services for such
         platforms, systems and products.

         The Company is engaged in leading projects in Israel and worldwide,  in
         areas such as air,  ground and naval Command,  Control,  Communication,
         Computers,  Intelligence,  Surveillance  and  Reconnaissance  ("C4ISR")
         systems,  digital  maps,  night vision  systems,  pilot helmet  mounted
         systems,  display and data  processing  systems,  unmanned air vehicles
         ("UAVs"),  computerized  simulators,  communication systems,
         thermal imaging  products,  laser  products,  optical systems for space
         applications,  airborne  reconnaissance  systems,  optic  communication
         systems  and  products,  security  systems and  products,  surveillance
         products and systems and electric drive systems.

         The  Company  provides  a wide  range  of  logistic  support  services,
         including  operation  of pilot  training  services  for the Israeli Air
         Force on a private financing  initiative ("PFI") basis.  Several of the
         Group's  companies also provide advanced  engineering and manufacturing
         services   to   various   customers,    utilizing   their   significant
         manufacturing   capabilities.   The  Company  often   cooperates   with
         industries in Israel and in various other countries.

B.       BACKLOG OF ORDERS
         -----------------

         The Company's backlog of orders as of September 30, 2003 reached $1,702
         million,  of which  64.0%  were  for  orders  outside  of  Israel.  The
         Company's  backlog as of December 31, 2002 was $1,689  million,  out of
         which 62% were for orders outside of Israel.

         Approximately  58% of the Company's backlog as of September 30, 2003 is
         scheduled to be performed in the forth quarter of 2003 and during 2004.
         The  majority of the 42% balance is  scheduled  to be performed in 2005
         and 2006.


<PAGE>

         The relatively small increase in the Company's  backlog resulted mainly
         from a slowdown in orders received from the Israeli Ministry of Defense
         ("IMOD") due to the budgetary considerations and continued postponement
         in placing new orders made by the IMOD.

C.       MAJOR SUBSIDIARIES AND AFFILIATED COMPANIES
         -------------------------------------------

         o        Elop Electro-Optics Industries Ltd. ("El-Op") - a wholly owned
                  subsidiary  registered  in Israel,  is engaged in the field of
                  advanced  electro-optical   products  for  defense,   homeland
                  security  and  civil  applications.   El-Op's  main  areas  of
                  activity include development and production of thermal imaging
                  products,   laser   products,   optical   systems   for  space
                  applications,   airborne   reconnaissance   systems,   optical
                  communications   systems,  fire  control  systems  for  combat
                  vehicles,  homeland  security  products and other  systems for
                  defense applications.

         o        EFW Inc. ("EFW") - a wholly owned subsidiary registered in the
                  United States,  serves as the base for the Group's  activities
                  in the  United  States,  mainly  in the  area of  development,
                  production and  maintenance of advanced  defense  products and
                  systems.

         o        Vision  Systems  International  LLC  ("VSI")  - an  affiliated
                  company  in the  United  States,  owned  50%  each  by EFW and
                  Rockwell  Collins  Inc.,  is  engaged  in the  area of  helmet
                  mounted systems primarily for fighter aircraft.

         o        Cyclone  Aviation  Products Ltd.  ("Cyclone") - a wholly owned
                  subsidiary registered in Israel, provides logistic support and
                  maintenance   services  for  aircraft  and   helicopters   and
                  manufactures   structure  components  and  sub-assemblies  for
                  aircraft.

         o        Silver  Arrow  LP  -  a  wholly  owned   limited   partnership
                  registered  in  Israel,  is  engaged  in the  business  of UAV
                  systems and products.

         o        Ortek Ltd. ("Ortek") - a wholly owned subsidiary registered in
                  Israel, is engaged mainly in the area of security products and
                  systems and night vision equipment.

         o        Kinetics Ltd. ("Kinetics") - a 51% owned subsidiary registered
                  in  Israel,   is  involved   mainly  in  the  development  and
                  production of systems and components for combat vehicles.

         o        Semi-Conductor   Devices  ("SCD")  -  an  Israeli   affiliated
                  partnership,   owned  50%  each  by  the  Company  and  Rafael
                  Armaments Development Authority Ltd. ("Rafael"), is engaged in
                  the development and production of infrared detectors and laser
                  diodes.

         o        Opgal  Optronic   Industries  Ltd.   ("Opgal")  -  an  Israeli
                  affiliated  company,  owned  50.1% by the Company and 49.9% by
                  Galram Technologies Ltd., a wholly owned subsidiary of Rafael,
                  is engaged mainly in the area of thermal  imaging  systems for
                  commercial applications.


<PAGE>

         o        The Company has holdings,  directly and indirectly, in several
                  relatively  small  companies  in  various   countries.   These
                  companies are engaged mainly in the  manufacturing,  marketing
                  and servicing of defense  avionics and  electronics as well as
                  defense related software.

         The Company  also has  holdings,  directly and  indirectly,  in several
         non-defense technology spin-off companies whose activities are based on
         technologies that were developed by the Company. The spin-off companies
         are  involved  primarily  in the areas of  medical  equipment,  optical
         communications and space satellites.

         The Company evaluates investments in affiliates, partnerships and other
         companies,  and when relevant  factors  indicate  other than  temporary
         decline  in the fair  value of the  investments  below  their  carrying
         value,  the Company adjusts the investment to the estimated fair value.
         The value of these  companies is subject to ongoing  changes  resulting
         from their business conditions.

D.       CRITICAL ACCOUNTING POLICIES AND ESTIMATES
         ------------------------------------------

         The Company's  significant  accounting policies are described in Note 2
         to the  audited  consolidated  financial  statements  included in Elbit
         Systems' annual report form 20-F for the year ended December 31, 2002.

         The Company's  results of operations and financial  condition are based
         on the preparation of consolidated  financial  statements in conformity
         with  generally  accepted  accounting  principles  in the  U.S.  ("U.S.
         GAAP").  The  preparation  of  the  consolidated  financial  statements
         requires   management  to  select  accounting   policies  for  critical
         accounting  areas as well as estimates and assumptions  that affect the
         amounts reported in the consolidated financial statements.  Significant
         changes in  assumptions  and/or  conditions  and  changes  in  critical
         accounting  policies could  materially  impact the Company's  operating
         results and financial condition.

         In the Company's opinion,  its most critical  accounting policy relates
         to revenue recognition based on SOP 81-1 "Accounting for Performance of
         Construction  Type and Certain  Production  Type  Contracts",  which is
         relevant to most of its revenues.

         Under SOP 81-1, the Company has adopted the  "percentage of completion"
         accounting method.  Under this method, the Company recognizes  revenues
         and profits on long-term fixed price  contracts  generally based on the
         ratio of costs  incurred to  estimates  of costs to be incurred for the
         total contract.  Under this approach,  the Company  compares  estimated
         costs to complete an entire  contract to total revenues for the term of
         the contract in order to arrive at an estimated gross margin percentage
         for each contract.  The updated  estimated  gross margin  percentage is
         applied,  and the current period gross profit is the difference between
         the cumulative  earned gross profit and gross profit reported for prior
         periods.

         Management  reviews these estimates  periodically and the effect of any
         change in the  estimated  gross  margin  percentage  for a contract  is
         reflected  in cost of sales in the period in which the  change  becomes
         known.  If  increases  in  projected  costs to complete a contract  are
         sufficient  to create a loss in  completing  the  contract,  the entire
         estimated loss is charged to cost of sales in the period the loss first
         becomes known.


<PAGE>

         A number of internal and external  factors  affect the  Company's  cost
         estimates,  including labor rates,  estimated  future material  prices,
         revised estimates of uncompleted work, efficiency variances, linkage to
         indices and exchange rates,  customer  specifications  and requirements
         and testing  requirement  changes.  If any of the above factors were to
         change,  or if different  assumptions  were used in the  application of
         this and  other  accounting  policies,  it is  likely  that  materially
         different  amounts  would be  reported  in the  Company's  consolidated
         financial statements.

E.       IMPAIRMENT OF GOODWILL AND OTHER LONG-LIVED ASSETS
         --------------------------------------------------

         Consistent with Statement of Financial  Accounting  Standards  ("SFAS")
         No.  142,  "Goodwill  and Other  Intangible  Assets,"  goodwill  is not
         amortized,  and is  tested  at least  annually  for  impairment.  As of
         September  30, 2003,  the Company's  goodwill and assembled  work force
         amounted to $32.6 million.

         Consistent  with  SFAS  No.  144,  "Accounting  for the  Impairment  or
         Disposal of Long-Lived Assets," the Company evaluates long-lived assets
         for impairment and assesses their recoverability based upon anticipated
         future cash flows.  As of September 30, 2003, the Company's  long-lived
         assets  amounted  to  $289.4   million,   including  $69.5  million  in
         intangible  assets,  and the Company  concluded  that no  assessment of
         impairment loss was necessary.

         Should  future  impairment  tests made by the  Company  determine  that
         impairment  has  occurred  in the value of the  Company's  goodwill  or
         long-lived  assets,  such  impairment may have a material effect on the
         financial  results of the Company in the period in which the impairment
         is determined.

F.       SPECIAL EVENTS THAT AFFECTED THE BUSINESS RESULTS
         -------------------------------------------------

         The  change  in  the  Company's  share  price  affected  the  Company's
         financial  results due to the impact of the employee  stock option plan
         for key employees adopted in 2000. The program was comprised of options
         for 5 million  shares,  divided  into  options  to  purchase  up to 2.5
         million  shares and  additional  2.5  million  "phantom"  options.  The
         phantom   options   grant  the  option   holders  a  number  of  shares
         corresponding  to the benefit  component of the options  exercised,  as
         calculated on the exercise date, in  consideration  for their par value
         only, and are  considered as a variable  option plan. The actual number
         of options  granted as of  September  30,  2003 was  approximately  4.5
         million.

         Under U.S. GAAP, the change in the share price is recorded periodically
         as compensation  expense, or income, based on the vesting period of the
         options.  The effect is allocated mainly to the Company's cost of goods
         sold and general and  administrative  expenses,  with  smaller  amounts
         allocated to R&D and sales and marketing expenses.

I.       SUMMARY OF FINANCIAL RESULTS
         ----------------------------

         The following table sets forth the reported consolidated  statements of
         operations  of the Company for the three and  nine-month  periods ended
         September 30, 2003 and September 30, 2002.

<PAGE>
<TABLE>
<CAPTION>
                                                  For the nine months ended                     For the three months ended
                                                        September 30                                   September 30
                                            ------------------------------------------  -------------------------------------------
                                                    2003                    2002                   2003                  2002
                                            --------------------    ------------------     -----------------      ------------------
                                                $           %           $         %           $          %           $          %
                                            ---------   --------    --------   -------     ---------  ------      ---------  -------
                                                                         (In thousands of U.S. dollars except per share data)

<S>                                           <C>         <C>        <C>        <C>         <C>        <C>         <C>        <C>
Total revenues                                635,223     100.0      589,143    100.0       214,275    100.0       210,155    100.0
Cost of revenues                              464,882      73.2      434,216     73.7       158,078     73.8       150,738     71.7
                                              -------     -----      -------    -----       -------    -----       -------    -----
Gross profit                                  170,341      26.8      154,927     26.3        56,197     26.2        59,417     28.3
                                              -------     -----      -------    -----       -------    -----       -------    -----
Research and development expenses, net         43,006       6.8       39,710      6.8        14,518      6.8        14,785      7.0
Marketing and selling expenses                 50,696       8.0       47,289      8.0        15,573      7.3        17,346      8.3
General and administrative expenses            33,924       5.3       30,741      5.2        11,035      5.1        10,760      5.1
                                              -------     -----      -------    -----       -------    -----       -------    -----
                                              127,626      20.1      117,740     20.0        41,126     19.2        42,891     20.4
                                              -------     -----      -------    -----       -------    -----       -------    -----
Operating  income                              42,715       6.7       37,187      6.3        15,071      7.0        16,526      7.9
Finance expenses, net                         (3,467)     (0.5)        (690)    (0.1)         (161)    (0.1)         (595)    (0.3)
Other income (expenses), net                      332       0.1        (524)    (0.1)           241      0.1         (115)    (0.1)
                                              -------     -----      -------    -----       -------    -----       -------    -----
Income before income taxes                     39,580       6.3       35,973      6.1        15,151      7.0        15,816      7.5
Taxes on income                                10,502       1.7        6,810      1.1         3,900      1.8         1,565      0.7
                                              -------     -----      -------    -----       -------    -----       -------    -----
                                               29,078       4.6       29,163      5.0        11,251      5.2        14,251      6.8
Minority interest in losses (gains) of
subsidiaries                                      456       0.1          269      0.0         (234)    (0.1)           139      0.1
Equity in net earnings of affiliated
companies and partnership                       3,938       0.6        2,554      0.4           989      0.5         1,114      0.5
                                              -------     -----      -------    -----       -------    -----       -------    -----
Net earnings                                   33,472       5.3       31,986      5.4        12,006      5.6        15,504      7.4
                                               ======       ===       ======      ===        ======      ===        ======      ===
Diluted earnings per share                       0.83                   0.80                   0.30                   0.39
                                                 ====                   ====                   ====                   ====

</TABLE>



<PAGE>

         NON -US GAAP DISCLOSURE
         -----------------------

         The  following  table sets forth the  Company's  results of  operations
         excluding  the  effect  of the  Company's  phantom  stock  option  plan
         ("phantom plan") in 2003 and 2002, the non-recurring  charge related to
         the  agreement  reached by El-Op with the Office of the  Israeli  Chief
         Scientist ("OCS") and the tax adjustment in 2002.

<TABLE>
<CAPTION>
                                                                   For the nine months                    For the three months
                                                                    ended September 30                     ended September 30
                                                             -----------------------------------   ---------------------------------
                                                                   2003                2002              2003               2002
                                                               $          %        $         %       $        %         $         %
                                                             -------    ----    -------    ----    ------    ----     ------    ----
                                                              (In thousands of U.S. dollars except per share data)

<S>                                                          <C>        <C>     <C>        <C>     <C>       <C>      <C>       <C>
GROSS PROFIT AS REPORTED                                     170,341    26.8    154,927    26.3    56,197    26.2     59,417    28.3
Non-recurring charge due to OCS agreement                          -       -      9,801     1.7         -       -          -       -
Non-cash expense (income) related to phantom plan              1,863     0.3      (510)   (0.1)   (1,669)   (0.8)      (173)   (0.1)
                                                             -------    ----    -------    ----    ------    ----     ------    ----
Gross  profit  excluding  phantom plan effect in 2003 and
2002, and non-recurring OCS charge in 2002                   172,204    27.1    164,218    27.9    54,528    25.4     59,244    28.2
                                                             =======     ===     ======     ===     =====     ===     ======     ===
OPERATING  INCOME AS REPORTED                                 42,715     6.7     37,187     6.3    15,071     7.0     16,526     7.9

Non-recurring charge due to OCS agreement                          -       -      9,801     1.7         -       -          -       -
Non-cash expense (income) related to phantom plan              3,387     0.6      (928)   (0.2)   (3,034)   (1.4)      (314)   (0.2)
                                                             -------    ----    -------    ----    ------    ----     ------    ----
Operating  profit  excluding  phantom plan effect in 2003
and 2002, and non-recurring  OCS charge in 2002               46,102     7.3     46,060     7.8    12,037     5.6     16,212     7.7
                                                             =======     ===     ======     ===     =====     ===     ======     ===
NET EARNINGS AS REPORTED                                      33,472     5.3     31,986     5.4    12,006     5.6     15,504     7.4

Non-recurring charge due to OCS agreement, net                     -       -      7,840     1.3         -       -          -       -
Tax adjustment                                                     -       -    (2,800)   (0.5)         -       -    (2,800)   (1.3)
Non-cash expense (income) related tophantom plan, net          2,710     0.4      (687)   (0.1)   (2,427)   (1.1)      (208)   (0.1)
                                                             -------    ----    -------    ----    ------    ----     ------    ----
Net  earnings  excluding  phantom plan effect in 2003 and
2002,  non-recurring  OCS  charge and tax  adjustment  in
2002                                                          36,182     5.7     36,339     6.2     9,579     4.5     12,496     5.9
                                                              ======     ===     ======     ===     =====     ===     ======     ===
DILUTED EARNINGS PER SHARE AS REPORTED                          0.83               0.80              0.30               0.39

Diluted earnings per share excluding  phantom plan effect
in  2003  and  2002,   non-recurringOCS  charge  and  tax
adjustment in 2002                                              0.90               0.91              0.24               0.31
                                                                ====               ====              ====               ====
</TABLE>


<PAGE>

         REVENUES
         --------

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         The  Company's  consolidated  revenues  increased by 7.8%,  from $589.1
         million in the nine months ended  September 30, 2002, to $635.2 million
         in the nine months ended September 30, 2003.

         The following  table sets forth the Company's  revenue  distribution by
         areas of operation:

<TABLE>
<CAPTION>
                                                                                  Nine-Month Period ended
                                                              ---------------------------------------------------------
                                                                   September 30, 2003           September 30, 2002
                                                              ---------------------------   ---------------------------
                                                                   $ millions           %     $ millions          %

<S>                                                                     <C>          <C>           <C>         <C>
         Airborne systems                                               304.8        48.0          274.8       46.7
         Combat vehicle systems                                         118.4        18.6           96.2       16.3
         C4I systems                                                     95.4        15.0           86.1       14.6
         Electro-optics                                                  79.1        12.5          101.1       17.2
         Other  (mainly non-defense engineering    and
         production services)                                            37.5         5.9           30.9        5.2
                                                                         ----         ---           ----        ---
         Total                                                          635.2       100.0          589.1      100.0
                                                                        =====       =====          =====      =====
</TABLE>

         Some of the  Electro-optics  products  are  incorporated  in the higher
         level  systems,  primarily  in the Combat  vehicle  systems and sold as
         such.

         The following  table sets forth the Company's  distribution of revenues
by geographical regions:

<TABLE>
<CAPTION>
                                                                                Nine-Month Period ended
                                                              ---------------------------------------------------------
                                                                   September 30, 2003           September 30, 2002
                                                              ---------------------------   ---------------------------
                                                                   $ millions           %     $ millions          %
<S>                                                                     <C>          <C>           <C>         <C>
         Israel                                                         186.3        29.3          149.9       25.5
         United States                                                  244.7        38.5          196.8       33.4
         Europe                                                          71.7        11.3          102.7       17.4
         Other countries                                                132.5        20.9          139.7       23.7
                                                                        -----        ----          -----       ----
         Total                                                          635.2       100.0          589.1      100.0
                                                                        =====       =====          =====      =====
</TABLE>

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         The consolidated  revenues increased by 2.0% from $210.2 million in the
         third quarter of 2002 to $214.3 million in the third quarter of 2003.

         The following  table sets forth the Company's  revenue  distribution by
         areas of operation:

<PAGE>
<TABLE>
<CAPTION>
                                                                                Three-Month Period ended
                                                              ---------------------------------------------------------
                                                                   September 30, 2003           September 30, 2002
                                                              ---------------------------   ---------------------------
                                                                   $ millions           %     $ millions          %
<S>                                                                     <C>          <C>           <C>         <C>
         Airborne systems                                               103.6        48.3          104.9       49.9
         Combat vehicle systems                                          42.6        19.9           26.1       12.4
         C4I systems                                                     30.8        14.4           30.1       14.3
         Electro-optics                                                  24.4        11.4           36.9       17.6
         Other  (mainly non-defense engineering    and
         production services)                                            12.9         6.0           12.2        5.8
                                                                         ----         ---           ----        ---
         Total                                                          214.3       100.0          210.2      100.0
                                                                        =====       =====          =====      =====
</TABLE>


         The following  table sets forth the Company's  distribution of revenues
         by geographical regions:

<TABLE>
<CAPTION>
                                                                                Three-Month Period ended
                                                              ---------------------------------------------------------
                                                                   September 30, 2003           September 30, 2002
                                                              ---------------------------   ---------------------------
                                                                   $ millions           %     $ millions          %
<S>                                                                      <C>         <C>            <C>        <C>
         Israel                                                          74.5        34.8           53.1       25.3
         United States                                                   85.1        39.7           69.6       33.1
         Europe                                                          22.7        10.6           37.9       18.0
         Other countries                                                 32.0        14.9           49.6       23.7
                                                                         ----        ----           ----       ----
         Total                                                          214.3       100.0          210.2      100.0
                                                                        =====       =====          =====      =====
</TABLE>


         The Company's  sales are made  primarily to  governmental  entities and
         prime contractors under government defense programs.  Accordingly,  the
         level of the Company's  revenues is subject to  governmental  budgetary
         constraints.  The recent economic  situation in Israel has created some
         uncertainty  with  respect  to the  Israeli  Government's  general  and
         defense budgets.

         The third  quarter  sales  were  effected  by delays in  receipt of new
         orders, which were planned to be sold during the quarter, as well as by
         delays in reaching milestones in technologicaly advanced programs.

         GROSS PROFIT
         ------------

         The Company's  gross profit  represents  the  aggregate  results of the
         Company's activities and projects,  and is based on the mix of programs
         in which the Company is engaged during the reported period.

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         Reported  gross profit in the nine months ended  September 30, 2003 was
         $170.3  million as compared to $154.9  million in the nine months ended
         September 30, 2002. The reported gross profit margin in the nine months
         ended  September  30,  2003  was  26.8%  as  compared  to  26.3% in the
         corresponding period of the previous year.

         The Company's cost of goods sold in the nine months ended September 30,
         2003  included  $1.9 million in non-cash  expenses  resulting  from its
         phantom  option  plan,  as compared to an income of $0.5 million in the
         nine months ended September 30, 2002.

         Excluding  non-cash  expenses related to the Company's  phantom option,
         gross  profit in the nine months  ended  September  30, 2003 was $172.2
         million, or 27.1% of revenues.


<PAGE>

         Excluding  the  non-recurring  charge under the OCS  agreement  and the
         phantom option plan effect, gross profit in the nine-month period ended
         September 30, 2002 was $164.2 million, or 27.9% of revenues.

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         Reported gross profit in the quarter ended September 30, 2003 was $56.2
         million as compared to $59.4 million in the quarter ended September 30,
         2002. The reported gross profit margin in the third quarter of 2003 was
         26.2% as compared to 28.3% in the same period last year.

         The Company's  cost of goods sold in the third quarter of 2003 included
         $1.7 million in non-cash income resulting from its phantom option plan,
         as compared to an immaterial amount in the third quarter of 2002.

         Excluding  non-cash  expenses  related to the Company's  phantom option
         compensation  costs,  gross profit in the quarter  ended  September 30,
         2003 was $54.5 million, or 25.4% of revenues.

         The decrease in gross profit  resulted  mainly from the mix in revenues
         and increased  costs  required to complete  milestones in certain fixed
         price programs.

         RESEARCH AND DEVELOPMENT ("R&D")
         --------------------------------

         The Company continually invests in R&D in order to maintain and further
         advance its technologies, in accordance with a long-term plan, based on
         its estimate of future market needs.

         The Company's R&D activities in the reported  period were in accordance
         with its plans.

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         Gross R&D expenses in the nine months ended  September 30, 2003 totaled
         $47.1 million (7.4% of revenues), as compared to $42.7 million (6.8% of
         revenues) in the nine months ended September 30, 2002.

         Net R&D expenses (after deduction of the OCS participation) in the nine
         months  ended  September  30,  2003  totaled  $43.0  million  (7.2%  of
         revenues),  as compared to $39.7 million (6.7% of revenues) in the nine
         months ended September 30, 2002.

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         Gross R&D  expenses in the quarter  ended  September  30, 2003  totaled
         $16.2 million (7.6% of revenues), as compared to $15.9 million (7.5% of
         revenues) in the quarter ended September 30, 2002.


<PAGE>

         Net R&D  expenses  (after  deduction of the OCS  participation)  in the
         quarter  ended  September  30,  2003  totaled  $14.5  million  (6.8% of
         revenues), as compared to $14.8 million (7.0% of revenues) in the third
         quarter of 2002.

         R&D  expenses  in the quarter  ended  September  30,  2003  included an
         immaterial  amount of non-cash income related to the Company's  phantom
         option plan.

         MARKETING AND SELLING EXPENSES
         ------------------------------

         The Company invests significantly in developing new markets and pursues
         at  any  given  time  various  business  opportunities.  The  continued
         investment in  developing  new business  opportunities,  as well as the
         reflected increased length of time required for marketing efforts until
         orders are received, is related to marketing and selling expanses.

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         Marketing and selling  expenses in the nine months ended  September 30,
         2003 were  $50.7  million  (8.0% of  revenues),  as  compared  to $47.3
         million (8.0% of revenues) in the nine months ended September 30, 2002.

         Excluding the phantom option plan non-cash expenses in 2003,  marketing
         and selling  expenses in the nine months ended  September 30, 2003 were
         $50.2 million (7.9% of revenues).

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         Marketing and selling  expenses in the quarter ended September 30, 2003
         were $15.6  million  (7.3% of  revenues),  as compared to $17.3 million
         (8.3% of revenues) in the quarter ended September 30, 2002.

         Excluding the phantom  option plan non-cash  income in 2003,  marketing
         and selling expenses in the quarter ended September 30, 2003 were $16.0
         million (7.5% of revenues).

         GENERAL AND ADMINISTRATIVE ("G&A") Expenses
         -------------------------------------------

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         G&A expenses  were $33.9  million (5.3% of revenues) in the nine months
         ended  September  30,  2003,  as  compared  to $30.7  million  (5.2% of
         revenues) in the nine months ended September 30, 2002.

         Excluding  the phantom  option  plan  non-cash  expenses  in 2003,  G&A
         expenses in the nine months ended September 30, 2003 were $33.1 million
         (5.2% of revenues).


<PAGE>

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         G&A expenses were $11.0 million (5.1% of revenues) in the quarter ended
         September 30, 2003, as compared to $10.8 million (5.1% of revenues) in
         the quarter ended September 30, 2002.

         Excluding the phantom option plan non-cash income in 2003, G&A expenses
         in the quarter  ended  September  30, 2003 were $11.8  million (5.5% of
         revenues).

         OPERATING INCOME
         ----------------

         The  majority of the  Company's  operating  expenses are related to the
         Company's  investment in the  development  of future  technologies  and
         products,  and in generating new business.  These expenses are included
         in the Company's R&D and marketing and sales  expenses,  which together
         accounted for 73.4% and 73.2% of the operating expenses during the nine
         and three-month periods ended September 30, 2003, respectively.

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         As a result of all of the above,  reported operating income in the nine
         months ended  September  30, 2003 was $42.7 million (6.7% of revenues),
         as  compared to $37.2  million  (6.3% of  revenues)  in the nine months
         ended September 30, 2002.

         For the nine months ended  September 30, 2003, the Company's  operating
         profit included $3.4 million in non-cash  expenses  associated with the
         Company's phantom option plan, as compared to an income of $0.9 million
         in the nine months ended September 30, 2002.

         Excluding phantom share  compensation  costs,  operating income totaled
         $46.1 million (7.3% of revenues) in the nine months ended September 30,
         2003.

         Excluding  the  non-recurring  charge under the OCS  agreement  and the
         phantom option plan effect,  operating income in the nine-month  period
         ended September 30, 2002 was $46.1 million, or 7.8% of revenues.

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         As a result  of all of the  above,  reported  operating  income  in the
         quarter ended  September 30, 2003 was $15.1 million (7.0% of revenues),
         as compared to $16.5  million  (7.9% of revenues) in the quarter  ended
         September 30, 2002.

         During  the third  quarter  of 2003,  the  Company's  operating  profit
         included $3.0 million in non-cash income  associated with the Company's
         phantom option plan, as compared to an immaterial  amount in the second
         quarter of 2002.

         Excluding phantom share compensation  income in 2003,  operating income
         totaled $12.0 million (5.6% of revenues) in the quarter ended September
         30, 2003.


<PAGE>

         FINANCE EXPENSE (NET)
         ---------------------

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         Net finance  expense in the nine months  ended  September  30, 2003 was
         $3.5  million,  as compared to $0.7  million of finance  expense in the
         nine months ended September 30, 2002.

         The increase in the net finance  expense during the  nine-month  period
         ended  September 30, 2003 as compared to the respective  period in 2002
         resulted mainly from a higher level of short-term loans from banks, and
         from the effect of the  devaluation  of the US dollar  against  the New
         Israeli Shekel ("NIS") on NIS denominated  loans, which occurred in the
         first and second quarters of 2003.

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         Net finance  expense in the quarter  ended  September 30, 2003 was $0.2
         million,  as compared to $0.6 million of finance expense in the quarter
         ended September 30, 2002.

         TAXES ON INCOME
         ---------------

         The Company's tax rate  represents a weighted  average of the tax rates
         to which the various companies in the Group are subject. The changes in
         the  effective tax rate are  attributable  mainly to the mix of the tax
         rates in the various tax  jurisdictions in which the Group's  companies
         generating the taxable income operate.

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         Provision  for taxes in the nine months  ended  September  30, 2003 was
         $10.5 million (effective tax rate of 26.5%), as compared to a provision
         for  taxes of $6.8  million  (effective  tax rate of 18.9%) in the nine
         months ended September 30, 2002.

         The provision for taxes in the third quarter of 2002 include  reduction
         of tax expenses in the amount of $2.8  million,  due to  adjustment  of
         estimated  taxes and completion of tax  assessments  for prior years in
         respect of various Group companies.

         Excluding the tax reduction  mentioned  above, the Company tax rate for
         the nine-months ended September 30, 2002 would have been 27.5%.

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ONSEPTEMBER 30, 2002
         --------------------------

         Provision  for taxes in the quarter  ended  September 30, 2003 was $3.9
         million  (effective tax rate of 25.7 %), as compared to a provision for
         taxes of $1.6 million (effective tax rate of 9.9%) in the quarter ended
         September 30, 2002.

         Excluding the tax reduction mentioned above, the tax rate for the third
         quarter of 2002 would have been 27.6%.


<PAGE>

         COMPANY'S SHARE IN EARNINGS OF AFFILIATED COMPANIES AND PARTNERSHIP
         -------------------------------------------------------------------
         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         In the nine months ended  September 30, 2003 the Company had net income
         of $3.9 million from its share in earnings of affiliated  companies and
         partnership,  as  compared  to $2.6  million in the nine  months  ended
         September 30, 2002.

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         In the third quarter of 2003 the Company had net income of $1.0 million
         from its share in earnings of affiliated companies and partnership,  as
         compared to $1.1 million in the third quarter of 2002.

         The affiliated companies and partnership in which the Company holds 50%
         or less in shares or voting rights and are  therefore not  consolidated
         in the Company's financial statements,  operate mainly in the Company's
         core business areas, including electro-optics and airborne systems.

         NET EARNINGS AND EARNINGS PER SHARE ("EPS")
         -------------------------------------------

         NINE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
         ----------------------------------------------------------------------
         ON SEPTEMBER 30, 2002
         ---------------------

         Reported net earnings in the nine months ended  September 30, 2003 were
         $33.5 million (5.3% of revenues),  as compared to reported net earnings
         of $32.0 million (5.4% of revenues) in the nine months ended  September
         30, 2002.  Diluted EPS in the nine months ended  September 30, 2003 was
         $0.83,  as  compared  to  $0.80  per  share in the  nine  months  ended
         September 30, 2002.

         Excluding  the phantom  option  plan  non-cash  expenses  in 2003,  net
         earnings in the nine months ended September 30, 2003 were $36.2 million
         (5.7% of revenues) and the EPS was $0.90.

         Excluding the non-recurring charge under the OCS agreement, the phantom
         option  plan  effect  and  the  tax  adjustment,  net  earnings  in the
         nine-month  period ended September 30, 2002 were $36.3 million (6.8% of
         revenues) and the EPS was $0.91.

         The number of shares  used for  computation  of diluted EPS in the nine
         months ended September 30, 2003 was 40,198 thousand shares, as compared
         to 39,896  thousand shares in the nine months ended September 30, 2002.
         The  increase in the number of shares used for  computation  of diluted
         EPS was due mainly to the exercise of options by  employees  during the
         period.

         THREE MONTHS ENDED ON SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS
         ------------------------------------------------------------------
         ENDED ON SEPTEMBER 30, 2002
         ---------------------------

         Reported  net  earnings in the quarter  ended  September  30, 2003 were
         $12.0 million (5.6% of revenues),  as compared to reported net earnings
         of $15.5 million (7.4% of revenues) in the quarter ended  September 30,
         2002. Diluted EPS in the quarter ended September 30, 2003 was $0.30, as
         compared to $0.39 in the quarter ended September 30, 2002.


<PAGE>

         Excluding the phantom option plan non-cash income in 2003, net earnings
         in the quarter  ended  September  30, 2003 were $9.6  million  (4.5% of
         revenues), and the EPS was $0.24.

         Excluding the phantom  option plan effect and the tax  adjustment,  net
         earnings  in the third  quarter  of 2002 were  $12.5  million  (5.9% of
         revenues) and the EPS was $0.31.

         The number of shares used for computation of diluted EPS in the quarter
         ended  September 30, 2003 was 40,406  thousand  shares,  as compared to
         39,772  thousand  shares in the quarter ended  September 30, 2002.  The
         increase  in the number of shares used for  computation  of diluted EPS
         was due mainly to exercise of options by employees during the period.

J.       LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         The Company's cash flows are effected by the  cumulative  cash flows of
         its various  projects in the reported  periods.  Project cash flows are
         affected by the timing of the receipt of advances and the collection of
         accounts  receivable  from  customers,  which relate to specific events
         during the project,  while  expenses  are  on-going.  As a result,  the
         Company's cash flows may vary from one period to another.

         The  Company's  policy  is to  invest  its cash  surplus  primarily  in
         interest bearing deposits in accordance with its projected needs.

         The  resources   available  to  the  Company  include  mainly  profits,
         collection of accounts receivable,  advances from customers, as well as
         Government of Israel  grants and  participation  and bank  financing in
         Israel  and  elsewhere  based  on the  Company's  capital,  assets  and
         activities.  In  addition,  the  Company has the ability to raise funds
         through the offering of shares and  debentures  to the public from time
         to time.

         The Company's net cash flows generated from operating activities in the
         nine-month period ended September 30, 2003 were $12.7 million.

         Net cash flows used for investment  activities in the nine-month period
         ended September 30, 2003 were $37.4 million, which were used mainly for
         procurement of property,  plant and  equipment.  The  investments  were
         primarily in equipment for the Group's various manufacturing plants and
         in buildings  being  constructed at Elbit  Systems'  facility in Haifa,
         Israel and El-Op's site in Rehovot, Israel.

         Net cash flows used for financing  activities in the nine-month  period
         ended  September 30, 2003 were $5.7  million.  The cash flows were used
         mainly for reduction of long-term loans, which were partially offset by
         proceeds from share options exercised.

         On September 30, 2003,  the Company had total  borrowings in the amount
         of $107.8  million,  including $41.0 million in short-term  loans,  and
         $394.0 million in guarantees  issued on its behalf by banks,  mainly in
         respect of advance payment and performance  guarantees  provided in the
         regular  course of business.  On September 30, 2003,  the Company had a
         cash balance amounting to $45.9 million.

         As of  September  30, 2003,  the Company had working  capital of $185.4
         million and its current ratio was 1.47.  The Company's  ratio of equity
         to total assets was 46.6%.


<PAGE>

K.       DERIVATIVES AND HEDGE
         ---------------------

         Market risks relating to the Company's operations result primarily from
         changes in interest rates and exchange  rates,  and the Company may use
         financial  instruments to limit exposure.  The Company typically enters
         into  forward  contracts  in  connection  with  transactions  that  are
         denominated  in  currencies  other than US dollars and NIS. The Company
         may enter from time to time into forward contracts related to NIS.

         On September 30, 2003,  the Company's  liquid assets were  comprised of
         bank deposits,  and it had no  investments in liquid equity  securities
         that were subject to market  fluctuations.  The Company's  deposits and
         loans are  based on  variable  interest  rates,  and their  value as of
         September  30,  2003 was  therefore  not exposed to changes in interest
         rates.  Should interest rates either increase or decrease,  such change
         may affect the Company's  results of  operations  due to changes in the
         cost of its  liabilities and the return on its assets that are based on
         variable rates.

         The Company's  functional currency is the U.S. dollar. On September 30,
         2003, the Company had exposure due to liabilities denominated in NIS of
         $41.4  million  in  excess  of  its  NIS  denominated   assets.   These
         liabilities  represent  mostly  wages,  trade  payables and loans.  The
         amount of the Company's exposure to the changes in the NIS/US$ exchange
         rate may vary  from  time to time.  In order to hedge  against  certain
         expected NIS  payments,  the Company  entered  into  forward  contracts
         designated as hedging.  As of September  30, 2003,  the results of then
         existing  derivatives  were being deferred until payments are realized,
         which is expected to occur during  2003.  On  September  30, 2003,  the
         Company had forward  contracts  covering  NIS exposure in the amount of
         $6.9 million.

         Most of the Company's  assets and liabilities  which are denominated in
         currencies  other than the NIS and the U.S.  dollar were  covered as of
         September 30, 2003 by forward  contracts.  On September  30, 2003,  the
         Company  had  contracts  for the  sale  and  purchase  of such  foreign
         currencies totaling $28.2 million.

L.       DIVIDENDS
         ---------

         The Board of  Directors  declared  on  November  10, 2003 a dividend of
         $0.10 per share.

                                           * * *
         -----------------------------------------------------------------------
         Forward  looking  statements  with respect to the  Company's  business,
         financial  condition  and results of  operations  in this  document are
         subject to risks and  uncertainties  that could cause actual results to
         differ  materially  from those  contemplated  in such  forward  looking
         statements,  including,  but not limited to, product  demand,  pricing,
         market acceptance,  changing economic conditions,  risks in product and
         technology development, the effect of the Company's accounting policies
         as well as certain  other risk factors  which are detailed from time to
         time in the Company's SEC filings.





</TEXT>
</DOCUMENT>
