---

---

UNITED STATES SECURITIES AND EXCHANGE
COMMISSION WASHINGTON D.C. 20549

---

FORM 10-Q

|(Mark
One)
|----------

|x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended                                   June 30, 2005

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
|- | -----------------------------------------------------------------------------------------

For the transition period from _______________________ to_______________

Commission file number
0-538

|AMPAL-AMERICAN
ISRAEL CORPORATION                     
|------------------------------------------------------
|                                                      
|(Exact
Name of Registrant as Specified in Its Charter)

|                                |                      
|------------------------------- | ---------------------
|
|
|
|
|
|New York                        | 13-0435685           
|(State or Other Jurisdiction of | (I.R.S. Employer)    
|Incorporation of Organization)  | Identification Number

|                                         |           
|---------------------------------------- | ----------
|
|
|
|
|
|111 Arlozorov Street, Tel Aviv, Israel   | 62098     
|(Address of Principal Executive Offices) | (Zip code)

Registrant's Telephone Number, Including Area Code               (866) 447-8636

|                                                                                 
|---------------------------------------------------------------------------------
|Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.

|Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) , and
(2) has been subject to such filing requirements for the past 90 days.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Yes      x       No o

|Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
|---------------------------------------------------------------------------------------------------------------------

Yes o          No      x

|The
number of shares outstanding of the issuers Class A Stock, its only authorized
common stock, is 19,958,161 (as of August 4, 2005).
|---------------------------------------------------------------------------------------------------------------------------------------



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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES

Index to Form 10-Q

|        |                       | 
|------- | --------------------- | 
|
|
|
|
|
|Part I. | Financial Information | 

|         |                                                            
|-------- | -----------------------------------------------------------
|
|
|
|
|
|Item 1.  | Financial Statements                                       
|         | Consolidated Statements of Operations                      
|         | Six Months Ended June 30, 2005 and 2004                    
|         | Three Months Ended June 30, 2005 and 2004                  
|         | Consolidated Balance Sheets                                
|         | Consolidated Statements of Cash Flows                      
|         | Consolidated Statements of Changes in Shareholders' Equity 
|         | Consolidated Statements of Comprehensive Gain (LOSS)       
|         | Notes to the Consolidated Financial Statements.            
|Item 2.  | Management's Discussion and Analysis of                    
|         | Financial Condition and Results of Operations.             
|Item 3.  | Quantitative and Qualitative Disclosures                   
|         | About Market Risk                                          
|Item 4.  | Controls and Procedures                                    
|         |                                                            
|Part II. | Other Information                                          
|         |                                                            
|Item 1.  | Legal Proceedings                                          
|Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds
|Item 3.  | Defaults upon Senior Securities                            
|Item 4.  | Submission of Matters to a Vote of Security Holders        
|Item 5.  | Other Information                                          
|Item 6.  | Exhibits                                                   



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ITEM
1. FINANCIAL STATEMENTS

AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                             |  | 
|-------------------------------------------- |  | 
|
|
|
|
|
|REVENUES                                     |  | 
|Equity in earnings of affiliates             |  | 
|Real estate income                           |  | 
|Realized and unrealized gains on investments |  | 
|Interest                                     |  | 
|Other                                        |  | 
|                                             |  | 
|Total revenues                               |  | 
|                                             |  | 
|                                             |  | 
|EXPENSES                                     |  | 
|Interest                                     |  | 
|Real estate expenses                         |  | 
|Loss from impairment of investments          |  | 
|Translation loss                             |  | 
|Other (mainly general and administrative)    |  | 
|                                             |  | 
|Total expenses                               |  | 
|                                             |  | 
|                                             |  | 
|Gain before income taxes                     |  | 
|Provision for income taxes                   |  | 
|                                             |  | 
|Gain (loss) after income tax                 |  | 
|Minority interest                            |  | 
|                                             |  | 
|Net Gain (loss)                              |  | 
|                                             |  | 
|                                             |  | 
|Basic EPS:                                   |  | 
|Gain (loss) per Class A share                |  | 
|                                             |  | 
|                                             |  | 
|Shares used in calculation (in thousands)    |  | 
|                                             |  | 
|                                             |  | 
|Diluted EPS:                                 |  | 
|Gain (loss) per Class A share                |  | 
|                                             |  | 
|                                             |  | 
|Shares used in calculation (in thousands)    |  | 
|                                             |  | 

The
accompanying notes are an integral part of the consolidated financial statements.

1

---

---



AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS

|THREE MONTHS ENDED JUNE 30,                  | 2005 | 2004
|-------------------------------------------- | ---- | ----
|
|
|
|
|
|REVENUES                                     |      |     
|Equity in earnings of affiliates             |      |     
|Real estate income                           |      |     
|Realized and unrealized gains on investments |      |     
|Interest                                     |      |     
|Other                                        |      |     
|                                             |      |     
|Total revenues                               |      |     
|                                             |      |     
|                                             |      |     
|EXPENSES                                     |      |     
|Interest                                     |      |     
|Real estate expenses                         |      |     
|Loss from impairment of investments          |      |     
|Translation loss                             |      |     
|Other (mainly general and administrative)    |      |     
|                                             |      |     
|Total expenses                               |      |     
|                                             |      |     
|                                             |      |     
|(Loss) gain before income taxes              |      |     
|Provision for income taxes                   |      |     
|                                             |      |     
|(Loss) gain after income tax                 |      |     
|Minority interest                            |      |     
|                                             |      |     
|Net (Loss) gain                              |      |     
|                                             |      |     
|                                             |      |     
|Basic EPS:                                   |      |     
|(Loss) gain per Class A share                |      |     
|                                             |      |     
|                                             |      |     
|Shares used in calculation (in thousands)    |      |     
|                                             |      |     
|                                             |      |     
|Diluted EPS:                                 |      |     
|(Loss) gain per Class A share                |      |     
|                                             |      |     
|                                             |      |     
|Shares used in calculation (in thousands)    |      |     
|                                             |      |     

The accompanying notes are an
integral part of the consolidated financial statements.

2

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---



AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS

|ASSETS AS OF                           | June 30,
2005 | December 31,
2004
|-------------------------------------- | ------------- | -----------------
|
|
|
|
|
|Cash and cash equivalents              |               |                  
|Deposits, notes and loans receivable   |               |                  
|                                       |               |                  
|Marketable Securities                  |               |                  
|Other investments                      |               |                  
|                                       |               |                  
|Total Investments                      |               |                  
|                                       |               |                  
|Real estate property, less accumulated |               |                  
|depreciation of $13,034 and $12,190    |               |                  
|                                       |               |                  
|Other assets                           |               |                  
|                                       |               |                  
|                                       |               |                  
|Total Assets                           |               |                  
|                                       |               |                  

The accompanying notes are an
integral part of the consolidated financial statements.

3

---

---



AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS

|LIABILITIES AND SHAREHOLDERS' EQUITY AS OF     | June 30,
2005 | December 31,
2004
|---------------------------------------------- | ------------- | -----------------
|
|
|
|
|
|LIABILITIES                                    |               |                  
|Notes and loans payable                        |               |                  
|Debentures                                     |               |                  
|Deposits from tenants                          |               |                  
|Accounts payable, accrued expense and others   |               |                  
|                                               |               |                  
|Total Liabilities                              |               |                  
|                                               |               |                  
|                                               |               |                  
|Minority interests                             |               |                  
|                                               |               |                  
|                                               |               |                  
|SHAREHOLDERS EQUITY                            |               |                  
|4% Cumulative Convertible Preferred Stock, $5  |               |                  
|par value; authorized 189,287 shares; issued   |               |                  
|121,112 and 124,024 shares; outstanding        |               |                  
|117,762 and 120,674 shares                     |               |                  
|                                               |               |                  
|6-1/2% Cumulative Convertible Preferred Stock, |               |                  
|$5 par value; authorized 988,055 shares;       |               |                  
|issued 642,925 and 662,219 shares; outstanding |               |                  
|520,389 and 539,683 shares                     |               |                  
|                                               |               |                  
|Class A Stock; $1 par value; authorized        |               |                  
|60,000,000 shares; issued 25,787,745 and       |               |                  
|25,715,303 shares; outstanding 19,956,081      |               |                  
|and 19,883,639 shares                          |               |                  
|                                               |               |                  
|Additional paid-in capital                     |               |                  
|                                               |               |                  
|Retained earnings                              |               |                  
|                                               |               |                  
|Accumulated other comprehensive loss           |               |                  
|                                               |               |                  
|Treasury Stock, at cost                        |               |                  
|                                               |               |                  
|                                               |               |                  
|Total shareholders' equity                     |               |                  
|                                               |               |                  
|                                               |               |                  
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     |               |                  
|                                               |               |                  

The
accompanying notes are an integral part of the consolidated financial statements.

4

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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS

|SIX MONTHS ENDED JUNE 30,                        | 2005 | 2004
|------------------------------------------------ | ---- | ----
|
|
|
|
|
|Cash flows from operating activities:            |      |     
|Net gain (loss)                                  |      |     
|Adjustments to reconcile net loss to net cash    |      |     
|provided by operating activities:                |      |     
|Equity in earnings of affiliates                 |      |     
|Realized and unrealized gain on investments      |      |     
|Depreciation expense                             |      |     
|Amortization of deposits from tenants            |      |     
|Impairment of investments and loans              |      |     
|Translation loss                                 |      |     
|Minority interests                               |      |     
|Increase in other assets                         |      |     
|Increase (decrease) in accounts payable, accrued |      |     
|expenses and others                              |      |     
|Investments made in trading securities           |      |     
|Proceeds from sale of trading securities         |      |     
|Dividends received from affiliates               |      |     
|                                                 |      |     
|                                                 |      |     
|Net cash provided by operating activities        |      |     
|                                                 |      |     
|                                                 |      |     
|Cash flows from investing activities:            |      |     
|Deposits, notes and loans receivable collected   |      |     
|Deposits, notes and loans receivable granted     |      |     
|Investments made in affiliates and others        |      |     
|Proceeds from sale of investments                |      |     
|Return of capital by partnership                 |      |     
|Capital improvements                             |      |     
|                                                 |      |     
|                                                 |      |     
|Net cash (used in) provided by investing         |      |     
|activities                                       |      |     
|                                                 |      |     

The accompanying
notes are an integral part of the consolidated financial statements.

5

---

---



AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES 
CONSOLIDATED
STATEMENTS OF CASH FLOWS

|SIX MONTHS ENDED JUNE 30                      | 2005 | 2004
|--------------------------------------------- | ---- | ----
|
|
|
|
|
|Cash flows from financing activities:         |      |     
|Notes and loans payable received              |      |     
|Notes and loans payable repaid                |      |     
|Debentures repaid                             |      |     
|Contribution to partnership by minority       |      |     
|                                              |      |     
|                                              |      |     
|Net cash provided by financing activities     |      |     
|                                              |      |     
|Effect of exchange rate changes on cash and   |      |     
|Cash equivalents                              |      |     
|                                              |      |     
|                                              |      |     
|Net increase in cash and cash equivalents     |      |     
|Cash and cash equivalents at beginning of     |      |     
|period                                        |      |     
|                                              |      |     
|                                              |      |     
|Cash and cash equivalents at end of period    |      |     
|                                              |      |     
|                                              |      |     
|Supplemental Disclosure of Cash Flow          |      |     
|Information                                   |      |     
|Cash paid during the period:                  |      |     
|Interest paid to others                       |      |     
|                                              |      |     
|                                              |      |     
|Income taxes paid                             |      |     
|                                              |      |     
|Supplemental Disclosure of Non-cash           |      |     
|Investing Activities:                         |      |     
|Proceeds in tradable securities received from |      |     
|realization of an investment                  |      |     
|                                              |      |     
|                                              |      |     
|Dividend in kind from an affiliate            |      |     
|                                              |      |     

The
accompanying notes are an integral part of the consolidated financial statement.

6

---

---



AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                                            | June 30,
2005 | December 31,
2004
|------------------------------------------- | ------------- | -----------------
|
|
|
|
|
|4% PREFERRED STOCK                          |               |                  
|Balance, beginning of year                  |               |                  
|Conversion of 2,912 and 7,928 shares into   |               |                  
|Class A Stock                               |               |                  
|                                            |               |                  
|                                            |               |                  
|Balance, end of period                      |               |                  
|                                            |               |                  
|                                            |               |                  
|6-1/2% PREFERRED STOCK                      |               |                  
|Balance, beginning of year                  |               |                  
|Conversion of 19,294 and 35,161 shares into |               |                  
|Class A Stock                               |               |                  
|                                            |               |                  
|Balance, end of period                      |               |                  
|                                            |               |                  
|                                            |               |                  
|CLASS A STOCK                               |               |                  
|Balance beginning of year                   |               |                  
|Issuance of shares upon conversion of       |               |                  
|Preferred Stock                             |               |                  
|                                            |               |                  
|Balance, end of period                      |               |                  
|                                            |               |                  
|                                            |               |                  
|ADDITIONAL PAID-IN CAPITAL                  |               |                  
|Balance, beginning of year                  |               |                  
|Conversion of Preferred Stock               |               |                  
|                                            |               |                  
|Balance, end of period                      |               |                  
|                                            |               |                  
|                                            |               |                  
|RETAINED EARNINGS                           |               |                  
|Balance, beginning of year                  |               |                  
|Net gain (loss)                             |               |                  
|Dividends:                                  |               |                  
|4% Preferred Stock - $0.2 per share         |               |                  
|6-1/2% Preferred Stock - $0.325 per share   |               |                  
|                                            |               |                  
|                                            |               |                  
|Balance, end of period                      |               |                  
|                                            |               |                  

The
accompanying notes are an integral part of the consolidated financial statements.

7

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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                           | June 30,
2005 | December 31,
2004
|-------------------------- | ------------- | -----------------
|
|
|TREASURY STOCK            
|
|
|4% PREFERRED STOCK         |               |                  
|Balance, beginning of year |               |                  
|                           |               |                  
|                           |               |                  
|6-1/2% PREFERRED STOCK     |               |                  
|Balance, end of period     |               |                  
|                           |               |                  
|                           |               |                  
|CLASS A STOCK              |               |                  
|Balance, end of period     |               |                  
|                           |               |                  
|                           |               |                  
|Balance, end of period     |               |                  
|                           |               |                  

|SIX MONTHS ENDED JUNE 30                  | 2005 | 2004_
|----------------------------------------- | ---- | -----
|
|
|
|
|
|ACCUMULATED OTHER COMPREHENSIVE LOSS      |      |      
|                                          |      |      
|Cumulative translation adjustments:       |      |      
|Balance, beginning of year                |      |      
|                                          |      |      
|Foreign currency translation adjustment   |      |      
|                                          |      |      
|Balance, end of period                    |      |      
|                                          |      |      
|                                          |      |      
|Unrealized gain on marketable securities: |      |      
|Balance, beginning of year                |      |      
|Unrealized (loss) gain, net               |      |      
|Sale of available-for-sale securities     |      |      
|                                          |      |      
|Balance, end of period                    |      |      
|                                          |      |      
|                                          |      |      
|Balance, end of period                    |      |      
|                                          |      |      

The
accompanying notes are an integral part of the consolidated financial statements.

8

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AMPAL-AMERICAN ISRAEL
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE GAIN (LOSS)

|SIX MONTHS ENDED JUNE 30,                    | 2005 | 2004
|-------------------------------------------- | ---- | ----
|
|
|
|
|
|Net Gain (loss)                              |      |     
|                                             |      |     
|                                             |      |     
|Other comprehensive gain (loss), net of tax: |      |     
|Foreign currency translation adjustments     |      |     
|Unrealized (loss) gain on securities         |      |     
|                                             |      |     
|Other comprehensive (loss) income            |      |     
|                                             |      |     
|                                             |      |     
|Comprehensive income                         |      |     
|                                             |      |     
|                                             |      |     
|Related tax (expense) on other comprehensive |      |     
|gain:                                        |      |     
|Foreign currency translation adjustments     |      |     
|Unrealized gain on securities                |      |     

The accompanying notes are an
integral part of the consolidated financial statements.

9

---

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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

|1. | As
used in these financial statements, the term the Company refers
               to Ampal-American Israel Corporation (Ampal) and its
consolidated                subsidiaries.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | The
June 30, 2005 consolidated financial statements should be read in
               conjunction with the audited financial statements and the notes thereto
included                in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2004.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reference
should be made to the Companys consolidated financial statements for the year ended
December 31, 2004 for a description of the accounting policies, which have been continued
without change. Also, reference should be made to the notes to the Companys
December 31, 2004 consolidated financial statements for additional details of the Companys
consolidated financial condition, results of operations and cash flows. The details in
those notes have not changed except as a result of normal transactions in the interim.
All adjustments (of a normal recurring nature), which are, in the opinion of management,
necessary to a fair presentation of the results of the interim period have been included.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Recently
Issued Accounting Pronouncements
|-- | -----------------------------------------

| | In
December 2004, the FASB revised Statement No. 123 (FAS 123R), Share-Based Payment, which
requires companies to expense the estimated fair value of employee stock options and
similar awards. On April 14, 2005, the U.S. Securities and Exchange Commission adopted a
new rule amending the compliance dates for FAS 123R. In accordance with the new rule, the
accounting provisions of FAS 123R will be effective for the Company in fiscal 2006. The
Company expects to adopt the provisions of FAS 123R prospectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
such transition method, upon the adoption of SFAS 123R, Ampals financial statements
for periods prior to the effective date of the statement will not be restated. The impact
of this statement on Ampals financial statements or its results of operations in
2006 and beyond will depend upon various factors, among them Ampals future
compensation strategy. We expect that the effect of applying this statement on Ampals
results of operations in 2006 as it relates to existing option plans would not be
materially different from the SFAS 123 pro forma effect previously reported.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Employee
Stock Based Compensation
|-- | ---------------------------------

| | The
Company accounts for all employee stock options plans under APB Opinion No. 25, under
which no compensation costs were incurred. SFAS No. 123 Accounting for Stock-Based
Compensation (SFAS No. 123) established a fair value-based method of accounting for
employee stock options of similar equity instruments and encourages adoption of such
method for stock compensation plans. However, it also allows companies to continue to
account for those plans using the accounting treatment prescribed by APB No. 25 and
accordingly discloses pro forma data assuming the Company had accounted for employee
stock option grants using the fair value based method as defined in SFAS in No. 123.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
compensation cost for the options under plans in effect would have been determined in
accordance with SFAS No. 123, the Companys net income (loss) and EPS would have
been reduced as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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|SIX MONTHS ENDED JUNE 30,             | 2005 | 2004
|------------------------------------- | ---- | ----
|
|
|
|
|
|Basic EPS:                            |      |     
|Net Gain (loss):                      |      |     
|As reported(1)                        |      |     
|Less-stock based compensation expense |      |     
|determined under fair value method    |      |     
|                                      |      |     
|                                      |      |     
|Pro forma                             |      |     
|                                      |      |     
|                                      |      |     
|As reported                           |      |     
|                                      |      |     
|                                      |      |     
|Pro forma                             |      |     
|                                      |      |     
|                                      |      |     
|Diluted EPS :                         |      |     
|Net Gain (loss):                      |      |     
|                                      |      |     
|As reported                           |      |     
|Less-stock based compensation expense |      |     
|Determined under fair value method    |      |     
|                                      |      |     
|                                      |      |     
|Pro Forma                             |      |     
|                                      |      |     
|                                      |      |     
|As Reported                           |      |     
|                                      |      |     
|                                      |      |     
|Pro forma                             |      |     
|                                      |      |     

|THREE MONTHS ENDED JUNE 30            | 2005 | 2004
|------------------------------------- | ---- | ----
|
|
|
|
|
|Basic EPS:                            |      |     
|Net (loss) gain:                      |      |     
|As reported(1)                        |      |     
|Less-stock based compensation expense |      |     
|Determined under fair value method    |      |     
|                                      |      |     
|Pro forma                             |      |     
|                                      |      |     
|                                      |      |     
|As reported                           |      |     
|                                      |      |     
|                                      |      |     
|Pro forma                             |      |     
|                                      |      |     
|                                      |      |     
|Diluted EPS:                          |      |     
|                                      |      |     
|Net (loss) gain:                      |      |     
|As reported                           |      |     
|Less-stock based compensation expense |      |     
|Determined under fair value method    |      |     
|                                      |      |     
|                                      |      |     
|Pro forma                             |      |     
|                                      |      |     
|                                      |      |     
|As Reported                           |      |     
|                                      |      |     
|                                      |      |     
|Pro forma                             |      |     
|                                      |      |     

|(1) | After deduction of accrued Preferred Stock Dividend of $100 and $107 (for the
          three months $50 and $53), respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(2) | In 2005 and 2004, the effect of the conversion of the 4% and
          61⁄2% Preferred Stock was excluded from the basic and diluted EPS
          calculation due to its antidilutive effect.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Under
SFAS No. 123, the fair value of each option is estimated on the date of grant using the
Black Scholes option-pricing model with the following assumptions: (1) expected life of
options of 5 years (2) dividend yield of 0% (3) volatility ranging from 57% to 60% and (4)
risk-free interest rate ranging from 3.3% to 3.46%.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---

---



|5. | Segment
information presented below results
|-- | -------------------------------------------

| | Segment
information presented below results primarily from operations in Israel.
| | --------------------------------------------------------------------------------

|SIX MONTHS ENDED JUNE 30,     | 2005 | 2004
|----------------------------- | ---- | ----
|
|
|
|
|
|Revenues:                     |      |     
|Finance                       |      |     
|Real Estate                   |      |     
|Leisure-time                  |      |     
|Intercompany adjustments      |      |     
|                              |      |     
|                              |      |     
|Equity                        |      |     
|                              |      |     
|Total                         |      |     
|                              |      |     
|                              |      |     
|Pretax Operating Gain (Loss): |      |     
|Finance                       |      |     
|Real Estate                   |      |     
|Leisure-time                  |      |     
|                              |      |     
|                              |      |     
|Equity                        |      |     
|                              |      |     
|Total                         |      |     
|                              |      |     
|                              |      |     
|Total Assets:                 |      |     
|Finance                       |      |     
|Real Estate                   |      |     
|Leisure-Time                  |      |     
|Intercompany adjustments      |      |     
|                              |      |     
|Total                         |      |     
|                              |      |     

|Corporate
office expense is principally applicable to the financing operations and has been charged
to that segment above.
|--------------------------------------------------------------------------------------------------------------------------

|The
real estate rental segment consists of rental property owned in Israel and leased in the
United States and leased or subleased to unrelated parties, and of the operations of
Am-Hal Ltd., a wholly-owned subsidiary which owns and operates a chain of senior citizen
facilities located in Israel.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
leisure-time segment consists primarily of Coral World International Limited (marine parks
located in Israel and around the world) and Country Club Kfar Saba, the Companys
51%-owned subsidiary located in Israel.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The
following table summarizes securities that were not included in the
               calculations of diluted earnings per Class A share for the six-month
periods                ended June 30, 2005 and 2004 because such shares are
anti-dilutive.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(Shares in thousands)  | JUNE 30,
|---------------------- | --------
|
|
|
|
|
|Options and Rights     |         
|6-1/2% Preferred Stock |         
|4% Preferred Stock     |         

12

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|7. | LEGAL
PROCEEDINGS:
|-- | ------------------

| | Ampal
Communications L.P.
| | -------------------------

| | 1. | On
May 10, 2004, Ampal Communications L.P., a limited partnership           controlled
by Ampal and in which Ampal holds a 75% equity interest, filed a           claim in the
Tel-Aviv District Court against Motorola Communications Israel           Ltd., Motorola
Israel Ltd., Elisha Yanai, Peter Brum, Rami Guzman, Nathan           Gidron, Shimon Tal
and MIRS Communications Ltd. (collectively, the           Defendants), for
injunctive and declaratory relief as described           below. The claim is in
connection with the exploitation by the defendants of           Ampal Communications minority
rights by virtue of its 33% holding in MIRS           Communications Ltd.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Ampal
Communications L.P. requested the Court to issue relief as follows:
| | -------------------------------------------------------------------------

| | A. | Declaring
that the business of MIRS Communications Ltd. is conducted in such a           way as to
be prejudicial to the rights of Ampal Communications L.P. as a           minority
shareholder;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Appointing
an appraiser to conduct a valuation of MIRS Communications Ltd. and           Ampal
Communications L.P.s holdings therein, which will encompass a review           of
the way MIRS Communications Ltd. conducts its business, including a review of
          the related party transactions between MIRS Communications Ltd. and Motorola
          Israel Ltd. and/or any other of the Defendants;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Instructing
each of the Defendants to acquire and purchase from Ampal           Communications L.P.
the shares it holds in MIRS Communications Ltd. at the           highest of the following
prices:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1) | based
on a company valuation of MIRS Communications Ltd. as presented to Ampal
          Communications L.P. by Motorola prior to the signing of the Share Purchase
          Agreement for MIRS Communications Ltd.; or
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | based
on the amount paid by Ampal Communications L.P. for its share holding in           MIRS
Communications Ltd. plus linkage to the Israeli consumer index and           interest; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | based
on the company valuation that will be determined by the valuation           specified in
Section B above, excluding any material negative effect           brought about by
the Defendants omissions and/or negligence in their           management of MIRS
Communications Ltd., all as may be assessed and computed by           the appraiser
specified in Section B above;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Determining
that each of the individual Defendants, as officers in MIRS           Communications
Ltd., has violated his respective fiduciary obligations towards           Ampal
Communications L.P. as a minority shareholder in MIRS Communications Ltd.;           and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Declaring
that the Share Purchase Agreement pursuant to which Ampal           Communications L.P.
acquired its shareholding in MIRS Communications Ltd. and           the Shareholders
Agreement in respect thereof, are void.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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|7. | LEGAL
PROCEEDINGS: (CONT.)
|-- | --------------------------

| | Ampal
Communications L.P.
| | -------------------------

| | 2. | On
May 24, 2004 and on May 31, 2004 the Defendants requested the district court           to
strike out the claim in limine, on the grounds that Ampal had allegedly not
          paid sufficient fees when filing the claim, and further requested an extension
          of the time for filing statements of defense until after the district court had
          reached a decision regarding the request to strike out the claim. Ampal and the
          Defendants filed various responses and on June 30, 2004, the district court
          requested the Attorney General to furnish an opinion regarding the
          Defendants request before issuing its own decision. On October 11, 2004
          the Attorney General furnished its opinion that supported the Defendants          request
that Ampal should pay the fees calculated on the basis of the value of           the
requested remedies in the claim. On November 10, 2004 Ampal filed its           response.
The Court also decided that the statements of defense should be filed           10 days
after it issues its decision regarding the striking out of the claim.           The Court
has scheduled a hearing on this matter for September 1, 2005.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | On
March 1, 2005, Ampal requested the district court to enter judgment against
          Peter Brum on the grounds that he failed to file a defense to the Companys
          claim. On March 15, 2005, the district court granted Ampals request and
          entered judgment against Peter Brum. On March 17, 2005, the district court
          ordered Mr. Brum to acquire and purchase from Ampal the shares it holds in MIRS
          for a total company valuation of $ 765,998,000, which is the highest of the
          prices set forth in the complaint. The litigation with regard to the other
          defendants is ongoing. Peter Brum, Motorola and MIRS have appealed the district
          courts judgment on numerous grounds. Ampal has filed responses to the
          appeal. The appellate court has not ruled on this appeal.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
Company has not received dividends from MIRS in the aggregate amount of           $14.2
million, included among other assets, due March 31, 2004 ($7.1
          million) and March 31, 2005 ($7.1 million). The dividends were not received due
          to the legal dispute discussed above. As a result of not receiving the
          dividends, the principal and the interest of the loan which were due March 31,
          2004 and March 31, 2005 were only partially paid.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | SUBSEQUENT
EVENT
|-- | ----------------

| | On
July 11, 2005, Ophir Holding Ltd., which is owned 42.5% by the Company, signed an
agreement to sell all of its holdings in a real estate property located in the industrial
park in Netanya, Israel for a total amount of approximately $ 11 million. Ampal expects
to receive approximately $4.5 million in cash from that sale. Ampal expects that the sale
of the property will have no material impact on its financial results.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES

CRITICAL
ACCOUNTING POLICIES

|The
preparation of Ampals consolidated financial statements is in conformity with
accounting principles generally accepted in the United States which requires management to
make estimates and assumptions in certain circumstances that affect amounts reported in
the accompanying consolidated financial statements and related footnotes. Actual results
may differ from these estimates. To facilitate the understanding of Ampals business
activities, described below are certain Ampal accounting policies that are relatively more
important to the portrayal of its financial condition and results of operations and that
require managements subjective judgments. Ampal bases its judgments on its
experience and various other assumptions that it believes to be reasonable under the
circumstances. Please refer to Note 1 to Ampals consolidated financial statements
included in the Annual Report for the year ended December 31, 2004 for a summary of all of
Ampals significant accounting policies.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Portfolio
Investments

|The
Company accounts for a number of its investments, including many of its investments in the
high technology and communications industries, on the basis of the cost method.
Application of this method requires the Company to periodically review these investments
in order to determine whether to maintain the current carrying value or to write off some
or all of the investment. While the Company uses some objective measurements in its
review, such as the portfolio companys liquidity, burn rate, termination of a
substantial number of employees, achievement of milestones set forth in its business plan
or projections and seeks to obtain relevant information from the company under review, the
review process involves a number of judgments on the part of the Companys
management. These judgments include assessments of the likelihood of the company under
review to obtain additional financing, to achieve future milestones, make sales and to
compete effectively in its markets. In making these judgments the Company must also
attempt to anticipate trends in the particular companys industry as well as in the
general economy. There can be no guarantee that the Company will be accurate in its
assessments and judgments. To the extent that the Company is not correct in its conclusion
it may decide to write down all or part of the particular investment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment
in MIRS

|MIRS
is our largest investment and is being accounted for at cost (our equity interest is 25%).
The cost method is applied due to preference features we have been granted in our
investment in preferred shares in MIRS. Revenues from guaranteed payments from Motorola
are recognized as income. We perform annual tests for impairment regarding our investment.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Marketable
Securities

|We
determine the appropriate classification of marketable securities at the time of purchase.
We hold marketable securities classified as trading securities that are carried at fair
value, and marketable securities classified as available-for-sale that are carried at fair
value with unrealized gains and losses included in the component of accumulated other
comprehensive loss in stockholders equity. We classify investment in marketable
securities as investment in trading securities, if those securities are bought and held
principally for the purpose of selling them in the near term (held for only a short period
of time). All the other securities are classified as available for sale securities.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

---



|Statement
of Financial Accounting Standards (SFAS) 115, Accounting for Certain
Investments in Debt and Equity Securities, and Securities and Exchange Commission (SEC)
Staff Accounting Bulletin (SAB) 59, Accounting for Noncurrent Marketable Equity
Securities, provides guidance on determining when an investment is other-than-temporarily
impaired. Investments are reviewed quarterly for indicators of other-than-temporary
impairment. This determination requires significant judgment. In making this judgment, we
evaluate, among other factors, the duration and extent to which the fair value of an
investment is less than its cost; the financial health of the investee; and our intent and
ability to hold the investment. Investments with an indicator are further evaluated to
determine the likelihood of a significant adverse effect on the fair value and amount of
the impairment as necessary. If market, industry and/or investee conditions deteriorate,
we may incur future impairments.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Long-Lived
Assets

|On
January 1, 2002, Ampal adopted FAS 144, Accounting for the Impairment or Disposal of
Long  Lived Assets. FAS 144 requires that long- lived assets, to be held and
used by an entity, be reviewed for impairment and, if necessary, written down to the
estimated fair values, whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through undiscounted future cash
flows.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accounting
for Income Taxes

|As
part of the process of preparing our consolidated financial statements, we are required to
estimate our income taxes in each of the jurisdictions in which we operate. This process
involves us estimating our current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are included in our
consolidated balance sheet. We must then assess the likelihood that our deferred tax
assets will be recovered from future taxable income, and, to the extent we believe that
recovery is not likely, we must establish a valuation allowance. To the extent we
establish a valuation allowance or increase this allowance in a period, we must include an
expense within the tax provision in the statement of operations. A valuation allowance is
currently set against certain tax assets because management believes it is more likely
than not that these deferred tax assets will not be realized through the generation of
future taxable income. We also do not provide for taxes on undistributed earnings of our
foreign subsidiaries, as it is our intention to reinvest undistributed earnings
indefinitely outside the United States.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Significant
management judgment is required in determining our provision for income taxes, our
deferred tax assets and liabilities and our future taxable income for purposes of
assessing our ability to realize any future benefit from our deferred tax assets. In the
event that actual results differ from these estimates or we adjust these estimates in
future periods, our operating results and financial position could be materially affected.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

---



Recently
Issued Accounting Pronouncements

|In
December 2004, the FASB revised Statement No. 123 (FAS 123R), Share-Based
Payment, which requires companies to expense the estimated fair value of employee
stock options and similar awards. On April 14, 2005, the U.S. Securities and Exchange
Commission adopted a new rule amending the compliance dates for FAS 123R. In accordance
with the new rule, the accounting provisions of FAS 123R will be effective for the Company
in fiscal 2006. The Company expects to adopt the provisions of FAS 123R prospectively.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Under
such transition method, upon the adoption of SFAS 123R, Ampals financial statements
for periods prior to the effective date of the statement will not be restated. The impact
of this statement on Ampals financial statements or its results of operations in
2006 and beyond will depend upon various factors, among them Ampals future
compensation strategy. We expect that the effect of applying this statement on
Ampals results of operations in 2006 as it relates to existing option plans would
not be materially different from the SFAS 123 pro forma effect previously reported.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Results
of Operations

Six
months ended June 30, 2005 compared to six months ended June 30, 2004

|Ampal-American
Israel Corporation (Ampal) and its subsidiaries (the Company)
recorded a consolidated net gain of $4.2 million for the six months ended June 30, 2005 as
compared to a net loss of $0.5 million for the same period in 2004. The increase in net
gain is primarily attributable to the increase of equity in earnings of affiliates,
realized and unrealized gains on investments the decrease in loss from impairment of
investments and the decrease in other expenses in the six months ended June 30, 2005 as
compared to the same period in 2004. This increase in net gain was partially offset by an
increase in interest expense for the six months ended June 30, 2005 as compared to the
same period in 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Equity
in earnings of affiliates increased to $6.2 million for the six months ended June 30,
2005, as compared to a gain of $1.4 million for the same period in 2004. The increase is
primarily attributable to a $6.3 million gain recorded by Ophir Holding Ltd. as a result
of the sale of all its holdings in Industrial Building Corporation Ltd..
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the six month period ended June 30, 2005, the Company recorded $5.1 million of realized
and unrealized gains on investments, as compared to $4.7 million of realized and
unrealized gains in the same period in 2004. The gains recorded in the six months ended
June 30, 2005 are mainly attributable to the sale of all of its shares of Modem Art Ltd.
($3.3 million gain) and to various tradable securities.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the six month period ended June 30, 2005, the Company record $0.6 million loss from the
impairment of its investments in Shiron Ltd. In the same period in 2004, the Company
recorded a $1.5 million loss from impairment of certain of its investments.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the six month period ended June 30, 2005, the Company recorded $4.4 million of other
expenses, as compared to $5.1 million for the same period in 2004. The decrease in other
expenses pertains to the closing of Ampals office in New York and to a decrease in
professional fees.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company recorded higher interest expense of $3.2 million in the six months ended June 30,
2005, as compared to $2.2 million in the same period in 2004, primarily as a result of
increases in interest rates.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---

---



Three
months ended June 30, 2005 compared to three months ended June 30, 2004

|The
Company recorded a consolidated net loss of $2.5 million for the three months ended June
30, 2005 as compared to a net gain of $0.3 million for the same period in 2004. The
decrease in net loss is primarily attributable to the decrease in realized and unrealized
gains on investments, the increase in interest expense, increase in loss from impairment
of investments, and the increase in translation loss in the three months ended June 30,
2005 as compared to the same period in 2004.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the three month period ended June 30, 2005, the Company recorded $1.1 million of realized
and unrealized gains on investments, as compared to $3.9 million of realized and
unrealized gains in the same period in 2004. The gains recorded in the three months ended
June 30, 2005 are mainly attributable to the sale of various tradable securities while in
2004 the gain is attributable to the sale of PowerDsine ($3.9 million).
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the three month period ended June 30, 2005, the Company recorded a $0.6 million loss from
the impairment of its investments in Shiron Ltd.
|---------------------------------------------------------------------------------------------------------------------------------------------

|The
Company recorded higher interest expense of $2.0 million in the three months ended June
30, 2005, as compared to $1.4 million in the same period in 2004, primarily as a result of
an increase in interest rates.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company recorded a translation loss of $1.0 million in the three months ended June 30,
2005 as compared to a translation loss of $0.3 million in the same period in 2004. The
translation losses in 2005 and 2004 are attributable to the devaluation of the New Israeli
Shekel against the U.S. dollar.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity
and Capital Resources

Cash
Flows

|The
Companys sources of cash include cash and cash equivalents and marketable
securities, which amount to $72.8 million as of June 30, 2005 as compared to $68.1 million
in December 31, 2004. The Company also has sources of cash from operations, cash from
investing activities and amounts available under credit facilities, as described below.
The Company believes that these sources are sufficient to fund the current requirements of
operations, capital expenditures, investing activities, dividends on preferred stock and
other financial commitments of the Company for the next 12 months. However, to the extent
that contingencies and payment obligations described below and in other parts of this
Report require the Company to make unanticipated payments, the Company would need to
further utilize these sources of cash. In the event of a decline in the market price of
its marketable securities, the Company may need to draw upon its other sources of cash,
which may include additional borrowing, refinancing of its existing indebtedness or
liquidating other assets, the value of which may also decline.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
addition, the shares of MIRS owned by the Company, the shares of Ophir Holdings Ltd. and
government debenture notes equal to $9 million have already been pledged as security for
various loans provided to the Company for the purchase of these shares and would therefore
be unavailable if the Company wished to pledge them in order to provide an additional
source of cash.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash
flows from operating activities

|Net
cash provided by operating activities totaled approximately $11.9 million for the six
months ended June 30, 2005, as compared to approximately $0.1 million at the same period
in 2004. The increase is primarily attributable to the $12.2 million net proceeds in
trading securities ($25.1 million proceeds offset by $12.9 million invested) as compared
to $9.9 million net proceeds in 2004, to the $2.4 million dividends received from
affiliates as compared to $0.3 million in 2004 and to an increase in accounts payable.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

---

---



Cash
flows from investing activities

|Net
cash used in investing activities totaled approximately $6.5 million for the six months
ended June 30, 2005, as compared to approximately $11.1 million provided by investing
activities for the same period in 2004. The cash used in investing activities during 2005
is primarily attributable to a payment of $8.7 million by Am-Hal Ltd. (Am-Hal), a wholly
owned subsidiary of the Company to acquire real estate for a new project in Tel-Aviv.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash
flows from financing activities

|Net
cash provided by financing activities was approximately $3.7 million for the six months
ended June 30, 2005, as compared to approximately $1.8 million of net cash provided by
financing activities for the six months period ended June 30, 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the six months ended June 30, 2005, Am-Hal Ltd. and its minority partner in the new
project borrowed $5.7 million and $1.8 million, respectively to finance the new project
(see cash flow from investing activities) and Ampal used its own cash to pay down its
existing notes payable and debentures in the amount of $3.9 million. In 2004, the Company
paid down its notes payable and debentures in the amount of $4.8 million by borrowing
funds in the amount of $6.6 million.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investments

|On
June 30, 2005, the aggregate fair value of trading and available-for-sale securities was
approximately $46.0 million, as compared to $50.4 million at December 31, 2004. The
decrease in 2005 is mainly attributable to the sale of various tradable securities.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During
the six months ended June 30, 2005, the Company made an additional investment of $0.5
million in Fimi Opportunity Fund, L.P. (Fimi).
|---------------------------------------------------------------------------------------------------------------------------------------------

During
March 2005, Ampal sold all of its shares of Modem Art Ltd. for $4.4 million and recorded a
gain of $3.3 million.

Debt

|In
connection with its investment in MIRS, the Company has two long-term loans from Bank
Hapoalim Ltd. (Hapoalim) and Bank Leumi le-Israel B.M. (Leumi) in
the outstanding amount of $38.6 million and $34.3 million, respectively, as of June 30,
2005. Both loans are due on March 31, 2008 and bear interest at a rate of LIBOR plus 0.8%.
Other than as described in this paragraph, the loans are non-recourse to the Company and
are secured by the Companys shares in MIRS. A total payment of 10% and 15% of the
principal of the loans were due on March 31, 2004 and March 31, 2005 respectively. The
remaining principal payments are due as follows: 25% on each of the following dates 
March 31, 2006, 2007 and 2008. Interest is payable annually on March 31 of each year from
March 31, 2001 until and including March 31, 2008. As a result of not receiving dividends
from MIRS on March 31, 2004 and March 31, 2005 (totaling $14.2 million) (see Legal
Proceedings), the principal and the interest of the loans were only partially paid.
Unpaid principal amounts are accruing interest at a higher interest rate.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As
of the date hereof, the banks have not declared a default with respect to such unpaid
amount. These loans are subject to the compliance by MIRS with covenants regarding its
operations and financial results.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

---

---



|The
Company financed a portion of the development of Am-Hal, a wholly-owned subsidiary which
develops and operates luxury retirement centers for senior citizens, through bank loans
from Hapoalim and others. At June 30, 2005, and December 31, 2004 the amounts outstanding
under these loans were $13.0 million and $7.7 million respectively. The loans mature in up
to one year and have interest rates range between 5.3% and 6.3%. The Company generally
repays these loans with the proceeds received from deposits and other payments from the
apartments in Am-Hal facilities. The loans are secured by a lien on Am-Hals
properties. The Company also issued guarantees in the amount of $3.9 million in favor of
tenants of Am-Hal in order to secure their deposits.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company also finances its general operations and other financial commitments through bank
loans from Bank Hapoalim. These loans in the amount of $31.3 million mature through
2006-2011.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
weighted average interest rates and the balances of these short-term borrowings at June
30, 2005 and December 31, 2004 were 5.7% on $18.2 million and 3.5% on $13.0 million,
respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As
of June 30, 2005, the Company had issued guarantees on certain outstanding loans to its
investees and subsidiaries in the aggregate principal amount of $12.5 million. This
includes:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | $0.5
million guarantee to Leumi with respect to the MIRS loan as described
               above.
| | -- | ------------------------------------------------------------------------------------------------

| | 2. | $5.6
million guarantee on indebtedness incurred by Bay Heart ($3.6 million of
               which is recorded as a liability in the Companys financial
statements as                of June 30, 2005) in connection with the development of its
property. Bay Heart                recorded losses in 2005, in managements belief,
primarily as a result of                decreased rental revenues. There can be no
guarantee that Bay Heart will become                profitable or that it will generate
sufficient cash to repay its outstanding                indebtedness without relying on
the Companys guarantee.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | $3.9
million guarantee to Am-Hal tenants as described above.
| | -- | ------------------------------------------------------------

| | 4. | $1.6
million guarantee to am-Hal for the new project in Tel-Aviv.
| | -- | -----------------------------------------------------------------

| | 5. | $0.9
million guarantee to Galha 1960 Ltd.
| | -- | -----------------------------------------

FOREIGN
CURRENCY CONTRACTS

|The
Companys derivative financial instruments consist of foreign currency forward
exchange contracts. The Company, utilizes these contracts from time to time, to manage
risk exposure to movements in foreign exchange rates. None of these contracts have been
designated as hedging instruments. These contracts are recognized as assets or liabilities
on the balance sheet at their fair value, which is the estimated amount at which they
could be settled based on market prices or dealer quotes, where available, or based on
pricing models. Changes in fair value are recognized currently in earnings. As of June 30,
2005, the Company had a $10 million open foreign currency forward exchange contract to
purchase U.S Dollars in payment of N.I.S.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

---



FORWARD
LOOKING STATEMENTS

|This
Quarterly Report (including but not limited to factors discussed above, in the
Managements Discussion and Analysis of Financial Condition and Results of
Operations, as well as those discussed elsewhere in this Quarterly Report on Form
10-Q) includes forward-looking statements (within the meaning of Section 27A of the
Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934) and
information relating to the Company that are based on the beliefs of management of the
Company as well as assumptions made by and information currently available to the
management of the Company. When used in this Quarterly Report, the words anticipate,
believe, estimate, expect, intend, plan, and similar expressions, as they relate to the
Company or the management of the Company, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future events or
future financial performance of the Company, the outcome of which is subject to certain
risks and other factors which could cause actual results to differ materially from those
anticipated by the forward-looking statements, including among others, the economic and
political conditions in Israel, the Middle East, and the global business and economic
conditions in the different sectors and markets where the Companys portfolio
companies operate.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Should
any of those risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcome may vary from those described herein as anticipated,
believed, estimated, expected, intended or planned. Subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements in this paragraph and
elsewhere described in this quarterly Report and other Reports filed with the Securities
and Exchange Commission.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET
RISKS AND SENSITIVITY ANALYSIS

|The
Company is exposed to various market risks, including changes in interest rates, foreign
currency rates and equity price changes. The following analysis presents the hypothetical
loss in earnings, cash flows and fair values of the financial instruments, which were held
by the Company at June 30, 2005, and are sensitive to the above market risks.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During
the six months ended June 30, 2005, there have been no material changes in the market risk
exposures facing the Company as compared to those the Company faced in the fiscal year
ended December 31, 2004.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest
Rate Risks

|At
June 30, 2005, the Company had financial assets totaling $25.9 million and financial
liabilities totaling $124.4 million. For fixed rate financial instruments, interest rate
changes affect the fair market value but do not impact earnings or cash flows. Conversely,
for variable rate financial instruments, interest rate changes generally do not affect the
fair market value but do impact future earnings and cash flows, assuming other factors are
held constant.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|At
June 30, 2005, the Company had fixed rate financial assets of $25.9 million and held no
variable rate financial assets. Holding other variables constant, a ten percent increase
in interest rates would decrease the unrealized fair value of the fixed financial assets
by approximately $0.1 million.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

---

---



|At
June 30, 2005, the Company had fixed rate debt of $3.6 million and variable rate debt of
$120.8 million. A ten percent decrease in interest rates would increase the unrealized
fair value of the fixed rate debt by approximately $0.1 million.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
net decrease in earnings for the next year resulting from a ten percent interest rate
increase would be approximately $0.6 million, holding other variables constant.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Exchange
Rate Sensitivity Analysis

|The
Companys exchange rate exposure on its financial instruments results from its
investments and ongoing operations in Israel. During 2005, the Company entered into a
foreign exchange forward purchase contract to partially hedge this exposure. At June 30,
2005, the Company held a $10 million foreign exchange forward purchase contracts to
purchase U.S. Dollars. Holding other variables constant, if there were a ten percent
devaluation of the foreign currency, the Companys cumulative translation (loss)
reflected in the Companys accumulated other comprehensive (loss) would increase by
$1.3 million, and in the statements of operations, a ten percent devaluation of the
foreign currency would decrease net earnings in the amount of approximately $3.3 million.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Securities
Price Risk

|The
Companys investments at June 30, 2005, included marketable securities (trading and
available-for-sale), which are recorded at fair value of $46.0 million. Those securities
have exposure to price risk. The estimated potential loss in fair value resulting from a
hypothetical ten percent decrease in prices quoted on stock exchanges is approximately
$4.6 million.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 4. CONTROLS AND PROCEDURES

Disclosure
Controls and Procedures

|The
Companys management with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of
the end of the period covered by this report. Based on such evaluation, the Companys
Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of
such period, the Companys disclosure controls and procedures are effective.
Notwithstanding the foregoing, a control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that it will detect or uncover
failures within the Company to disclose material information otherwise required to be set
forth in the Companys periodic reports.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Internal
Control Over Financial Reporting

|There
have not been any changes in the Companys internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during
the fiscal quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect the Companys internal control over financial
reporting.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

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|Part
II  OTHER INFORMATION
|---------------------------

|Item 1. | Legal
Proceedings:
|------- | ------------------

Ampal
Communications L.P.

| | 1. | On
May 10, 2004, Ampal Communications L.P., a limited partnership           controlled
by Ampal and in which Ampal holds a 75% equity interest, filed a           claim in the
Tel-Aviv District Court against Motorola Communications Israel           Ltd., Motorola
Israel Ltd., Elisha Yanai, Peter Brum, Rami Guzman, Nathan           Gidron, Shimon Tal
and MIRS Communications Ltd. (collectively, the           Defendants), for
injunctive and declaratory relief as described           below. The claim is in
connection with the exploitation by the defendants of           Ampal Communications minority
rights by virtue of its 33% holding in MIRS           Communications Ltd.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Ampal
Communications L.P. requested the Court to issue relief as follows:
| | -------------------------------------------------------------------------

| | A. | Declaring
that the business of MIRS Communications Ltd. is conducted in such a           way as to
be prejudicial to the rights of Ampal Communications L.P. as a           minority
shareholder;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Appointing
an appraiser to conduct a valuation of MIRS Communications Ltd. and           Ampal
Communications L.P.s holdings therein, which will encompass a review           of
the way MIRS Communications Ltd. conducts its business, including a review of
          the related party transactions between MIRS Communications Ltd. and Motorola
          Israel Ltd. and/or any other of the Defendants;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Instructing
each of the Defendants to acquire and purchase from Ampal           Communications L.P.
the shares it holds in MIRS Communications Ltd. at the           highest of the following
prices:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1) | based
on a company valuation of MIRS Communications Ltd. as presented to Ampal
          Communications L.P. by Motorola prior to the signing of the Share Purchase
          Agreement for MIRS Communications Ltd.; or
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | based
on the amount paid by Ampal Communications L.P. for its share holding in           MIRS
Communications Ltd. plus linkage to the Israeli consumer index and           interest; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | based
on the company valuation that will be determined by the valuation           specified in
Section B above, excluding any material negative effect           brought about by
the Defendants omissions and/or negligence in their           management of MIRS
Communications Ltd., all as may be assessed and computed by           the appraiser
specified in Section B above;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Determining
that each of the individual Defendants, as officers in MIRS           Communications
Ltd., has violated his respective fiduciary obligations towards           Ampal
Communications L.P. as a minority shareholder in MIRS Communications Ltd.;           and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Declaring
that the Share Purchase Agreement pursuant to which Ampal           Communications L.P.
acquired its shareholding in MIRS Communications Ltd. and           the Shareholders
Agreement in respect thereof, are void.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | On
May 24, 2004 and on May 31, 2004 the Defendants requested the district court           to
strike out the claim in limine, on the grounds that Ampal had allegedly not
          paid sufficient fees when filing the claim, and further requested an extension
          of the time for filing statements of defense until after the district court had
          reached a decision regarding the request to strike out the claim. Ampal and the
          Defendants filed various responses and on June 30, 2004, the district court
          requested the Attorney General to furnish an opinion regarding the
          Defendants request before issuing its own decision. On October 11, 2004
          the Attorney General furnished its opinion that supported the Defendants          request
that Ampal should pay the fees calculated on the basis of the value of           the
requested remedies in the claim.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

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Part
II  OTHER INFORMATION (CONT.)

| | On
November 10, 2004 Ampal filed its response. The Court called for a hearing in that matter
for June 1, 2005. The Court also decided that the statements of defense should be filed
10 days after it issues its decision regarding the striking out of the claim. The court
has scheduled a hearing on this matter for September 1, 2005.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | On
March 1, 2005, Ampal requested the district court to enter judgment against
          Peter Brum on the grounds that he failed to file a defense to the Companys
          claim. On March 15, 2005, the district court granted Ampals request and
          entered judgment against Peter Brum. On March 17, 2005, the district court
          ordered Mr. Brum to acquire and purchase from Ampal the shares it holds in MIRS
          for a total company valuation of $ 765,998,000, which is the highest of the
          prices set forth in the complaint. The litigation with regard to the other
          defendants is ongoing. Peter Brum, Motorola and MIRS have appealed the district
          courts judgment on numerous grounds. Ampal has filed responses to the
          appeal. The appellate court has not ruled on this appeal.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
Company has not received dividends from MIRS in the aggregate amount of           $14.2
million, included among other assets, due March 31, 2004 ($7.1
          million) and March 31, 2005 ($7.1 million). The dividends were not received due
          to the legal dispute discussed above. As a result of not receiving the
          dividends, the principal and the interest on the loan which were due March 31,
          2004 and March 31, 2005 were only partially paid.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SUBSEQUENT
EVENT

| | On
July 11, 2005, Ophir Holding Ltd., which is owned 42.5% by the Company, signed an
agreement to sell all of its holdings in a real estate property located in the industrial
park in Netanya, Israel for a total amount of approximately $ 11 million. Ampal expects
to receive approximately $4.5 million in cash from that sale. Ampal expects that the sale
of the property will have no material impact on its financial results.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. | Unregistered
Sales of Equity Securities and Use of Proceeds.                         None.
|------- | ------------------------------------------------------------------------------------------

|Item 3. | Defaults
upon Senior Securities                         None.
|------- | -------------------------------------------------------------

|Item 4. | Submission
of Matters to a Vote of Security Holders.                          None.
|------- | -----------------------------------------------------------------------------------

|Item 5. | Other
Information.                          None.
|------- | -------------------------------------------------

|Item 6. | Exhibits.
|------- | ---------

| | (a) | Exhibits:
| | --- | ---------

|11.1 |  | Schedule
Setting Forth Computation of Gain (Loss) per Share of Class A Stock.
|---- |  | -----------------------------------------------------------------------------

|31.1 |  | Certification
of Jack Bigio pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- |  | -------------------------------------------------------------------------------------

|31.2 |  | Certification
of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | -------------------------------------------------------------------------------------

|32.1 |  | Certification
 of Jack Bigio and Irit Eluz pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
Section                   906 of the Sarbanes-Oxley Act of 2002.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES

SIGNATURES

|Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | AMPAL-AMERICAN ISRAEL CORPORATIONBY: /S/ Jack Bigio
Jack BigioChief Executive Officer
(Principal Executive Officer)
| |  | ---------------------------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Irit Eluz
Irit EluzCFO and Senior Vice President,
Finance and Treasurer
(Principal Financial Officer)
| |  | ---------------------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Giora Bar-Nir
Giora Bar-NirVP Accounting and Controller
(Principal Accounting Officer)
| |  | ------------------------------------------------------------------------------------------------------------

Date:
August 10, 2005

25

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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES

Exhibit Index

|Exhibit No. | Description
|----------- | -----------

|11.1 |  | Schedule
Setting Forth Computation of Earnings Per Share of Class A Stock
|---- |  | -------------------------------------------------------------------------

|31.1 |  | Certification
of Jack Bigio pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- |  | -------------------------------------------------------------------------------------

|31.2 |  | Certification
of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | -------------------------------------------------------------------------------------

|32.1 |  | Certification
of Jack Bigio and Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

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