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"Tonight we passed the budget by a massive majority," Prime Minister Benjamin Netanyahu told a news conference after the vote.

The defense budget, which was the biggest bone of contention, ended up expanding by a mere $26 million. Netanyahu said it was the first time that defense spending was being increased since 1985. While this is a relatively small expansion, Netanyahu said, "it heralds a multi-year increase in strategic-defense spending."

The prime minister decided on this change by adding funds from the state budget and by shuffling within the defense budget.

Both Netanyahu and Finance Minister Ya'acov Ne'eman said that for the third straight year, budget deficits and the deficit in the balance of payments are being reduced and inflation curbed.

The budget for next year targets the deficit at 2 percent of Gross Domestic Product.

The education budget was cut by $52 million. Officials said it will be up to the Education Ministry to decide where the cuts will be made.

The turning point in mustering a majority apparently occurred after Ne'eman negotiated with each of the 13 ministers who had initially opposed the budget. It is not clear what he promised all of them. However, the National Infrastructure Ministry's budget was increased by $132 million, Trade and Industry by $79 million, and Absorption by $79 million.

Ne'eman said the government had stuck strictly to its original budget framework, implying there would be no new taxes and adding that as soon as this budget is fully passed the government will get down to the business of tax reform.

However, since most ministers refused to accept any cuts in their budgets, and even demanded increases, the Treasury had no choice but to dip into the citizens' pockets, economists observed.

Certain ministers noted before they changed their mind that the budget bears no hope for growth or reducing the recession and unemployment.

Yishai described the budget earlier Sunday as "awful. Simply terrible. It doesn't enable growth, or more employment. It does not bode well."

The budget still must be approved by the Knesset.