Exhibit 10-1
------------
                                    HERLEY INDUSTRIES, INC.
                                    1996 STOCK OPTION PLAN


SECTION 1.  GENERAL PROVISIONS

1.1.  Name and General Purpose
----  ------------------------

        The name of this plan is the Herley  Industries,  Inc. 1996 Stock Option
Plan  (hereinafter  called  the  "Plan").  The  purpose of the Plan is to enable
Herley  Industries,  Inc. (the "Company") and its subsidiaries and affiliates to
foster and promote the  interests  of the Company by  attracting  and  retaining
officers and employees of the Company who contribute to the Company's success by
their ability,  ingenuity and industry, to enable such officers and employees of
the Company to participate in the long-term success and growth of the Company by
giving them a  proprietary  interest  in the  Company  and to provide  incentive
compensation opportunities competitive with those of competing corporations.

1.2  Definitions
---  -----------

             a.      "Affiliate"  means  any  person or entity  controlled by or
                     under common  control  with  the Company, by  virtue of the
                     ownership of voting  securities, by contract or otherwise.

             b.      "Board" means the Board of Directors of the Company.

             c.      "Change in Control" means a change of control of the
                     Company, or in any person directly or indirectly
                     controlling the Company, which shall mean:

                     (a) a change in control as such term is  presently  defined
                     in Regulation 240.12b-(f) under the Securities Exchange Act
                     of 1934, as amended (the "Exchange Act"); or

                     (b) if any "person" (as such term is used in Section  13(d)
                     and 14(d) of the  Exchange  Act) other than the  Company or
                     any  "person"  who on  the  date  of  this  Agreement  is a
                     director or officer of the Company, becomes the "beneficial
                     owner" (as defined in Rule 13(d)-3  under the Exchange Act)
                     directly  or  indirectly,  of  securities  of  the  Company
                     representing  twenty  percent  (20%) or more of the  voting
                     power of the Company's then outstanding securities; or

                     (c) if  during  any  period  of two (2)  consecutive  years
                     during  the  term  of  this  Plan,  individuals  who at the
                     beginning of such period constitute the Board of Directors,
                     cease for any  reason  to  constitute  at least a  majority
                     thereof.

             d.      "Code" means the Internal Revenue Code of 1986, as amended.

             e.      "Committee" means the Committee  referred to in Section 1.3
                     of the Plan.

             f.      "Common Stock"  means shares of the Common Stock, par value
                     $.10 per share, of the Company.

                                        1

<PAGE>



             g.      "Company"  means  Herley  Industries, Inc.,  a  corporation
                     organized  under the  laws of the State of Delaware (or any
                     successor corporation).

             h.      "Disinterested  Person" shall have the meaning set forth in
                     Rule  16b-3(c)(2)  as  promulgated  by the  Securities  and
                     Exchange Commission (the "Commission"); provided, that such
                     person  is also  an  "outside  director"  as set  forth  in
                     Section 162(m) of the Code and the regulations  promulgated
                     thereunder.

             i.      "Fair  Market  Value"  means the market price of the Common
                     Stock on the National  Association  of  Securities  Dealers
                     Automated  Quotation  ("NASDAQ")  system on the date of the
                     grant or on any other date on which the Common  Stock is to
                     be valued hereunder. If no sale shall have been reported on
                     NASDAQ on such date,  Fair Market Value shall be determined
                     by  the   Committee   in   accordance   with  the  Treasury
                     Regulations  applicable  to incentive  stock  options under
                     Section 422 of the Code.

             j.      "Incentive Stock Option" means an Incentive Stock Option as
                     described in Section 2.1 of the Plan.

             k.      "Non-Qualified  Stock Option"  means a  Non-Qualified Stock
                     Option as described in Section 2.1 of the Plan.

             l.      "Option"  means any  option to  purchase Common Stock under
                     Section 2 of the plan.

             m.      "Participant" means any officer or employee of the Company,
                     a Subsidiary or an Affiliate who is selected by the
                     Committee to participate in the Plan.

             n.      "Subsidiary" means any corporation in which the Company
                     possesses directly or indirectly 50% or more of the
                     combined voting power of all classes of stock of such
                     corporation.

             o.      "Total Disability" means accidental bodily injury or
                     sickness which wholly and continuously disabled an
                     optionee.  The Committee, whose decisions shall be final,
                     shall make a determination of Total Disability.

1.3  Administration of the Plan
---  --------------------------

        The Plan shall be administered  by the Committee  appointed by the Board
consisting  of  two  or  more  members  of  the  Board  all  of  whom  shall  be
Disinterested  Persons.  The Committee  shall serve at the pleasure of the Board
and shall have such powers as the Board may, from time to time, confer upon it.

        Subject to this Section 1.3, the Committee  shall have sole and complete
authority to adopt, alter, amend or revoke such administrative rules, guidelines
and  practices  governing  the  operation of the Plan as it shall,  from time to
time, deem advisable, and to interpret the terms and provisions of the Plan.

                                        2

<PAGE>



        The Committee  shall keep minutes of its meetings and of action taken by
it without a meeting. A majority of the Committee shall constitute a quorum, and
the acts of a majority of the  members  present at any meeting at which a quorum
is present,  or acts  approved in writing by all of the members of the Committee
without a meeting, shall constitute the acts of the Committee.

1.4  Eligibility
---  -----------

        Stock  options may be granted only to regular  full-time  and  part-time
employees of the Company or a Subsidiary or  Affiliate.  Subject to Section 2.3,
any person who has been granted any Option may, if he is otherwise eligible,  be
granted an  additional  Option or Options.  Those  directors who are not regular
employees are not eligible.

1.5  Shares
---  ------

        The  aggregate  number of shares  reserved for issuance  pursuant to the
Plan shall be 500,000  shares of Common Stock,  or the number and kind of shares
of stock or other  securities  which shall be substituted  for such shares or to
which such shares shall be adjusted as provided in Section 1.6.

        Such  number  of  shares  may be set  aside  out of the  authorized  but
unissued shares of Common Stock or out of issued shares of Common Stock acquired
for and held in the Treasury of the Company, not reserved for any other purpose.
Shares  subject  to, but not sold or issued  under,  any Option  terminating  or
expiring  for any reason  prior to its  exercise in full will again be available
for Options thereafter granted during the balance of the term of the Plan.

1.6  Adjustments Due to Stock Splits,  Mergers, Consolidation, Etc.
---  --------------------------------  ----------------------------

        If, at any time,  the Company  shall take any  action,  whether by stock
dividend,  stock split,  combination of shares or otherwise,  which results in a
proportionate  increase  or  decrease  in the  number of shares of Common  Stock
theretofore issued and outstanding,  the number of shares which are reserved for
issuance  under the Plan and the  number  of shares  which,  at such  time,  are
subject to Options shall, to the extent deemed appropriate by the Committee,  be
increased or  decreased  in the same  proportion,  provided,  however,  that the
Company shall not be obligated to issue fractional shares.

        Likewise, in the event of any change in the outstanding shares of Common
Stock by reason of any recapitalization, merger, consolidation,  reorganization,
combination or exchange of shares or other corporate change, the Committee shall
make such substitution or adjustments, if any, as it deems to be appropriate, as
to the number or kind of shares of Common  Stock or other  securities  which are
reserved  for  issuance  under  the  Plan  and the  number  of  shares  or other
securities which, at such time are subject to Options.

        In the event of a Change in Control,  (a) all options outstanding on the
date of such Change in Control shall,  for a period of sixty (60) days following
such Change in Control,  become  immediately and fully  exercisable,  and (b) an
optionee will be permitted to surrender for cancellation  within sixty (60) days
after  such  Change in Control  any  option or  portion  of an option  which was
granted  more than six (6) months  prior to the date of such  surrender,  to the
extent not yet  exercised,  and to receive a cash  payment in an amount equal to
the excess,  if any, of the Fair Market Value (on the date of  surrender) of the
shares of Common  Stock  subject to the option or portion  thereof  surrendered,
over the aggregate purchase price for such Shares under the option.

                                        3

<PAGE>




1.7  Non-Alienation of Benefits
---  --------------------------

        Except as herein specifically provided, no right or unpaid benefit under
the Plan shall be subject to  alienation,  assignment,  pledge or charge and any
attempt to  alienate,  assign,  pledge or charge the same shall be void.  If any
Participant  or other person  entitled to benefits  hereunder  should attempt to
alienate,  assign,  pledge or charge any benefit  hereunder,  then such  benefit
shall, in the discretion of the Committee, cease.

1.8  Withholding or Deduction for Taxes
---  ----------------------------------

        If, at any time, the Company or any Subsidiary or Affiliate is required,
under applicable laws and regulations, to withhold, or to make any deduction for
any taxes, or take any other action in connection with any Option exercise,  the
Participant  shall be  required  to pay to the  Company  or such  Subsidiary  or
Affiliate, the amount of any taxes required to be withheld, or, in lieu thereof,
at the option of the Company,  the Company or such  Subsidiary  or Affiliate may
accept a  sufficient  number  of shares  of  Common  Stock to cover  the  amount
required to be withheld.

1.9  Administrative Expenses
---  -----------------------

        The  entire  expense  of  administering  the Plan  shall be borne by the
Company.

1.10 General Conditions
-----------------------

       a.     The Board or the Committee may, from time to time, amend,  suspend
              or terminate any or all of the  provisions  of the Plan,  provided
              that,  without the Participant's  approval,  no change may be made
              which would  prevent an Incentive  Stock Option  granted under the
              Plan from  qualifying  as an Incentive  Stock Option under Section
              422 of the Code or result  in a  "modification"  of the  Incentive
              Stock Option under Section  424(h) of the Code or otherwise  alter
              or impair any right  theretofore  granted to any Participant ; and
              further  provided  that,  without the consent and  approval of the
              holders of a majority of the outstanding shares of Common Stock of
              the Company present at a meeting at which a quorum exists, neither
              the  Board  nor the  Committee  may make any  amendment  which (i)
              changes the class of persons eligible for options;  (ii) increases
              (except as provided  under  Section 1.6 above) the total number of
              shares or other  securities  reserved for issuance under the Plan;
              (iii)  decreases  the minimum  option prices stated in Section 2.2
              hereof (other than to change the manner of determining Fair Market
              Value to conform to any then  applicable  provision of the Code or
              any regulation  thereunder);  (iv) extends the expiration  date of
              the Plan,  or the limit on the  maximum  term of  Options;  or (v)
              withdraws  the   administration  of  the  Plan  from  a  committee
              consisting of two or more members, each of whom is a Disinterested
              Person.

        b.   With the consent of the Participant affected thereby, the Committee
             may amend or  modify  any  outstanding  Option  in any  manner  not
             inconsistent  with  the  terms  of  the  Plan,  including,  without
             limitation,  and  irrespective of the provisions of Sections 2.3(c)
             and 2.4(b) below,  to  accelerate  the date or dates as of which an
             installment of an Option becomes exercisable.


                                        4

<PAGE>



        c.   Nothing  contained  in the Plan shall  prohibit  the Company or any
             Subsidiary  or  Affiliate  from   establishing   other   additional
             incentive compensation arrangements for employees of the Company or
             such Subsidiary or Affiliate.

        d.   Nothing in the Plan shall be deemed to limit, in any way, the right
             of the  Company or any  Subsidiary  or  Affiliate  to  terminate  a
             Participant's  employment  with the Company (or such  Subsidiary or
             Affiliate) at any time.

        e.   Any decision or action taken by the Board or the Committee  arising
             out of or in  connection  with  the  construction,  administration,
             interpretation  and  effect  of the Plan  shall be  conclusive  and
             binding  upon all  Participants  and any person  claiming  under or
             through any Participant .

        f.   No member of the Board or of the Committee  shall be liable for any
             act or  action,  whether of  commission  or  omission,  (i) by such
             member except in circumstances involving actual bad faith, nor (ii)
             by any other member or by any officer, agent or employee.


1.11  Compliance with Applicable Law
----  ------------------------------

        Notwithstanding  any other  provision of the Plan, the Company shall not
be  obligated  to issue any shares of Common  Stock,  or grant any  Option  with
respect thereto, unless it is advised by counsel of its selection that it may do
so without violation of the applicable  Federal and State laws pertaining to the
issuance of  securities  and the Company  may require any stock  certificate  so
issued to bear a legend, may give its transfer agent  instructions  limiting the
transfer  thereof,  and may  take  such  other  steps,  as in its  judgment  are
reasonably required to prevent any such violation.

1.12  Effective Dates
----  ---------------

        The Plan was  adopted  by the Board on  October  17,  1995,  subject  to
approval by the stockholders of the Company. The Plan shall terminate on October
16, 2005.

Section 2.  OPTION GRANTS
----------  -------------

2.1  Authority of Committee
---  ----------------------

        Subject to the provisions of the Plan, the Committee shall have the sole
and complete  authority to determine (i) the  Participants to whom Options shall
be granted;  (ii) the number of shares to be covered by each  Option;  and (iii)
the  conditions  and  limitations,  if any,  in  addition  to those set forth in
Sections 2 and 3 hereof,  applicable  to the  exercise  of an Option,  including
without limitation,  the nature and duration of the restrictions,  if any, to be
imposed upon the sale or other  disposition of shares  acquired upon exercise of
an Option.

        Stock options  granted under the Plan may be of two types:  an incentive
stock  option  ("Incentive  Stock  Option");  and a  non-qualified  stock option
("Non-Qualified Stock Option").


                                        5

<PAGE>



        It is intended that the Incentive Stock Options granted  hereunder shall
constitute incentive stock options within the meaning of Section 422 of the Code
and shall be subject to the tax treatment described in Section 422 of the Code.

        Anything in the Plan to the  contrary  notwithstanding,  no provision of
the Plan relating to Incentive  Stock Options shall be  interpreted,  amended or
altered,  nor shall any  discretion  or authority  granted  under the Plan be so
exercised,  so as to disqualify  either the Plan or,  without the consent of the
optionee, any Incentive Stock Option under Section 422 of the Code.

        The Committee shall have the authority to grant Incentive Stock Options,
or to grant  Non-Qualified  Stock Options, or to grant both types of Options. To
the extent that any Option does not qualify as an  Incentive  Stock  Option,  in
whole or in part, it shall constitute a separate  Non-Qualified  Stock Option to
the extent of such disqualification.

2.2  Option Exercise Price
---  ---------------------

        The  price of stock  purchased  upon the  exercise  of  Options  granted
pursuant to the Plan shall be the Fair Market Value thereof at the time that the
Option is granted.

        If an  employee  owns or is deemed to own (by reason of the  attribution
rules applicable under Section 424(d) of the Code) more than 10% of the combined
voting  power  of  all  classes  of  the  stock  of the  Company  or any  parent
corporation  of the Company or Subsidiary and an Option granted to such employee
is  intended  to qualify as an  Incentive  Stock  Option  within the  meaning of
Section 422 of the Code,  the  exercise  price shall be no less than 110% of the
Fair Market  Value of the Common  Stock on the date the Option is  granted.  The
purchase price is to be paid in full in cash,  certified or bank cashier's check
or, at the option of the  Company,  Common Stock valued at its Fair Market Value
on the date of exercise,  or a combination thereof, when the Option is exercised
and stock certificates will be delivered only against such payment.

2.3  Incentive Stock Option Grants
---  -----------------------------

        Each Incentive Stock Option will be subject to the following provisions:

        a.   Term of Option

             An  Incentive  Stock Option will be for a term of not more than ten
             years  from the date of grant,  except  in the case of an  employee
             described  in the second  paragraph  of Section  2.2 above in which
             case an Incentive  Stock Option will be for a term of not more than
             five years from the date of the grant.

        b.   Annual Limit

             To the extent the  aggregate  Fair Market Value of the Common Stock
             (determined  as of the date of  grant)  with  respect  to which any
             options  granted   hereunder  are  intended  to  be  designated  as
             Incentive  Stock  Options  under the Plan (or any  other  incentive
             stock  option plan of the Company or any  Subsidiary)  which may be
             exercisable for the first time by the optionee in any calendar year
             exceeds  $100,000,  such options shall not be considered  incentive
             stock options.

                                        6

<PAGE>



        c.   Exercise

             Subject to the power of the Committee  under Section  1.10(b) above
             and  except in the  manner  described  below  upon the death of the
             optionee, an Incentive Stock Option may be exercised for all of the
             subject shares on and after the first such  anniversary of the date
             of the  grant  of  such  Option  but in no  event  later  than  the
             expiration of the term of the Option.

             An  Incentive   Stock  Option  shall  be  exercisable   during  the
             optionee's   lifetime  only  by  the  optionee  and  shall  not  be
             exercisable by the optionee unless,  at all times since the date of
             grant and at the time of exercise,  such optionee is an employee of
             the  Company,   any  parent  corporation  of  the  Company  or  any
             Subsidiary,  except that, upon termination of all employment (other
             than by  death  or by  Total  Disability  followed  by death in the
             circumstances   provided  below)  with  the  Company,   any  parent
             corporation  of the Company and any  Subsidiary or  Affiliate,  the
             optionee may exercise an Incentive  Stock Option at any time within
             three  months  thereafter  but only to the  extent  such  Option is
             exercisable on the date of such termination.

             If termination  of employment is the result of the optionee  having
             reached  normal  retirement  age,  option  grants  continue  to  be
             exercisable  for five years after  retirement but in no event later
             than the expiration of the term of the Option.

             In the event of the death of an  optionee  (i) while an employee of
             the  Company,   any  parent  corporation  of  the  Company  or  any
             Subsidiary  or  Affiliate,   or  (ii)  within  three  months  after
             termination  of  all  employment  with  the  Company,   any  parent
             corporation of the Company and any  Subsidiary or Affiliate  (other
             than for Total  Disability)  or (iii)  within  three  months  after
             termination on account of Total  Disability of all employment  with
             the  Company,  any  parent  corporation  of  the  Company  and  any
             Subsidiary,  such optionee's  estate or any person who acquires the
             right to  exercise  such  option by  bequest or  inheritance  or by
             reason of the death of the optionee may  exercise  such  optionee's
             Option at any time  within  the period of one year from the date of
             death.  In the case of clauses  (i) and (iii)  above,  such  Option
             shall be exercisable  in full for all the remaining  shares covered
             thereby,  but in the  case of  clause  (ii)  such  Option  shall be
             exercisable  only to the extent it was  exercisable  on the date of
             such termination.

             If an optionee's  employment is terminated for deliberate,  willful
             or gross misconduct, all rights under an Option expire upon receipt
             by the optionee of the notice of such termination.

             Notwithstanding the foregoing  provisions regarding the exercise of
             an  Option  in the  event  of  death,  Total  Disability  or  other
             termination  of  employment,   in  no  event  shall  an  Option  be
             exercisable in whole or in part after the termination date provided
             in the Option.

        d.   Transferability

             An  Incentive  Stock  Option  granted  under the Plan  shall not be
             transferable  otherwise  than by will or by the laws of descent and
             distribution.

                                        7

<PAGE>



2.4  Non-Qualified Stock Option Grants
---  ---------------------------------

        Each  Non-Qualified  Stock  Option  will  be  subject  to the  following
provisions:

        a.   Term of Option

             A  Non-Qualified  Stock  Option will be for a term of not more than
             ten years from the date of grant.

        b.   Exercise

             The  exercise of a  Non-Qualified  Stock Option shall be subject to
             the same terms and  conditions  as provided  under  Section  2.3(c)
             above.

        c.   Transferability

             A  Non-Qualified  Stock Option  granted under the Plan shall not be
             transferable  otherwise  than by will or by the laws of descent and
             distribution.

2.5  Agreements
---  ----------

        In consideration of any Options granted to a Participant under the Plan,
each such  Participant  shall  enter into an Option  Agreement  with the Company
providing,  consistent  with the  Plan,  such  terms as the  Committee  may deem
advisable.

                                        8