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# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWASHINGTON D.C. 20549

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# 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 September 30, 2009

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

|                                         |           
|---------------------------------------- | ----------
|
|
|
|
|555 Madison Avenue                       |           
|New York, NY, USA                        | 10022     
|                                         |           
|(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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).

Yes o No o

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act (Check one):

| |                                                                       |                            
| | --------------------------------------------------------------------- | ---------------------------
|
|
|
|
| | Large accelerated filer o                                             | Accelerated filer x        
| |                                                                      
| | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o
| |                                                                       |                            

Indicate
by check mark whether the registrant is a shell company (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, par value $1.00 per share,
its only authorized common stock, is 56,133,764 (as of October 27, 2009).



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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIESIndex to Form 10-Q

|         |         |                                                                                       | Page 
|-------- | ------- | ------------------------------------------------------------------------------------- | -----
|
|
|
|
|Part I   |         | Financial Information                                                                 |      
|         | Item 1. | Financial Statements (unaudited)                                                     
|         |         | Consolidated Balance Sheet                                                            | 1-2  
|         |         | Consolidated Statement of Operations                                                  | 3-4  
|         |         | Consolidated Statement of Cash Flows                                                  | 5-6  
|         |         | Consolidated Statements of Changes in Shareholders' Equity                            | 7-8  
|         |         | Notes to the Consolidated Financial Statements                                        | 9-16 
|         | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17-25
|         | Item 3. | Quantitative and Qualitative Disclosures About Market Risk                            | 26-27
|         | Item 4. | Controls and Procedures                                                               | 27   
|Part II. |         | Other Information                                                                    
|         |         | Item 1.    Legal Proceedings                                                          | 28   
|         |         | Item 1A. Risk Factors                                                                 | 28   
|         |         | Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds                | 28   
|         |         | Item 3.    Defaults upon Senior Securities                                            | 28   
|         |         | Item 4.     Submission of Matters to a Vote of Security Holders                       | 28   
|         |         | Item 5.     Other Information                                                         | 28   
|         |         | Item 6.     Exhibits                                                                  | 28   



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ITEM 1. FINANCIAL STATEMENTS
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

|ASSETS AS OF                                                                 | September 30,
2009 | December 31,
2008
|---------------------------------------------------------------------------- | ------------------ | -----------------
|
|
|
|
|Current assets:                                                              |                    |                  
|Cash and cash equivalents                                                    |                    |                  
|Marketable securities                                                        |                    |                  
|Accounts receivable (Net of allowance for doubtful amounts of $1.7 and $0.3) |                    |                  
|Deposits                                                                     |                    |                  
|Inventories                                                                  |                    |                  
|Other assets                                                                 |                    |                  
|                                                                             |                    |                  
|Total current assets                                                         |                    |                  
|                                                                             |                    |                  
|Non-current assets:                                                          |                    |                  
|Investments                                                                  |                    |                  
|Fixed assets, less accumulated depreciation of $18,745 and $13,175           |                    |                  
|Deposits                                                                     |                    |                  
|Deferred income taxes                                                        |                    |                  
|Other assets                                                                 |                    |                  
|Goodwill                                                                     |                    |                  
|Intangible assets                                                            |                    |                  
|                                                                             |                    |                  
|Total Non-current assets                                                     |                    |                  
|                                                                             |                    |                  
|                                                                             |                    |                  
|TOTAL ASSETS                                                                 |                    |                  
|                                                                             |                    |                  
|                                                                             |                    |                  

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

1

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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

|LIABILITIES AND EQUITY AS OF                                                                 | September 30,
2009 | December 31,
2008
|-------------------------------------------------------------------------------------------- | ------------------ | -----------------
|
|
|
|
|LIABILITIES                                                                                  |                    |                  
|Current liabilities:                                                                         |                    |                  
|Notes and loans payable and current maturities                                               |                    |                  
|Accounts payable, accrued expenses and others                                                |                    |                  
|                                                                                             |                    |                  
|Total current liabilities                                                                    |                    |                  
|                                                                                             |                    |                  
|Long term liabilities:                                                                       |                    |                  
|Notes and loans payable                                                                      |                    |                  
|Debentures                                                                                   |                    |                  
|Deferred income taxes                                                                        |                    |                  
|Other long term liabilities                                                                  |                    |                  
|                                                                                             |                    |                  
|Total long term liabilities                                                                  |                    |                  
|                                                                                             |                    |                  
|Total liabilities                                                                            |                    |                  
|                                                                                             |                    |                  
|                                                                                             |                    |                  
|EQUITY                                                                                       |                    |                  
|Ampal's shareholders' equity:                                                                |                    |                  
|Class A Stock $1 par value; authorized 100,000,000 and 100,000,000 shares; issued 63,277,321 |                    |                  
|and 63,277,321 shares; outstanding 56,133,764 and 56,425,867 shares                          |                    |                  
|                                                                                             |                    |                  
|Additional paid-in capital                                                                   |                    |                  
|                                                                                             |                    |                  
|Retained earnings                                                                            |                    |                  
|                                                                                             |                    |                  
|Accumulated other comprehensive loss                                                         |                    |                  
|                                                                                             |                    |                  
|Treasury stock, at cost                                                                      |                    |                  
|                                                                                             |                    |                  
|                                                                                             |                    |                  
|Total Ampal shareholders' equity                                                             |                    |                  
|                                                                                             |                    |                  
|                                                                                             |                    |                  
|Noncontrolling interest                                                                      |                    |                  
|                                                                                             |                    |                  
|                                                                                             |                    |                  
|Total equity                                                                                 |                    |                  
|                                                                                             |                    |                  
|                                                                                             |                    |                  
|TOTAL LIABILITIES AND  EQUITY                                                                |                    |                  
|                                                                                             |                    |                  
|                                                                                             |                    |                  

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

2

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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

|NINE MONTHS ENDED SEPTEMBER 30,                                                      | 2009 | 2008
|------------------------------------------------------------------------------------ | ---- | ----
|
|
|
|
|REVENUES:                                                                            |      |     
|Chemical income                                                                      |      |     
|Real estate income                                                                   |      |     
|Realized gains on investments                                                        |      |     
|Realized and unrealized losses on marketable securities                              |      |     
|Interest income                                                                      |      |     
|Leisure-time income                                                                  |      |     
|Gain from redemption of debt, gain from change in ownership interest in a subsidiary |      |     
|and other income                                                                     |      |     
|                                                                                     |      |     
|Total revenues                                                                       |      |     
|                                                                                     |      |     
|EXPENSES:                                                                            |      |     
|Chemical expense - cost of goods sold                                                |      |     
|Equity in losses of affiliates                                                       |      |     
|Real estate expenses                                                                 |      |     
|Interest expense                                                                     |      |     
|Translation loss                                                                     |      |     
|Loss from sale of fixed assets                                                       |      |     
|Marketing expense                                                                    |      |     
|General, administrative and other                                                    |      |     
|                                                                                     |      |     
|Total expenses                                                                       |      |     
|                                                                                     |      |     
|Loss before income taxes                                                             |      |     
|Provision for income tax benefits                                                    |      |     
|                                                                                     |      |     
|Net loss                                                                             |      |     
|Less: Net loss attributable to noncontrolling interests                              |      |     
|                                                                                     |      |     
|Net loss from continuing operations                                                  |      |     
|                                                                                     |      |     
|                                                                                     |      |     
|Basic and diluted EPS:                                                               |      |     
|                                                                                     |      |     
|Loss per share                                                                       |      |     
|                                                                                     |      |     
|                                                                                     |      |     
|Shares used in EPS calculation (in thousands)                                        |      |     
|                                                                                     |      |     
|                                                                                     |      |     

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

3

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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

|THREE MONTHS ENDED SEPTEMBER 30,                                                     | 2009 | 2008
|------------------------------------------------------------------------------------ | ---- | ----
|
|
|
|
|REVENUES:                                                                            |      |     
|Chemical income                                                                      |      |     
|Real estate income                                                                   |      |     
|Realized gain (loss) on investments                                                  |      |     
|Realized and unrealized gains (losses) on marketable securities                      |      |     
|Interest income                                                                      |      |     
|Leisure-time income                                                                  |      |     
|Gain from redemption of debt, gain from change in ownership interest in a subsidiary |      |     
|and other income                                                                     |      |     
|                                                                                     |      |     
|Total revenues                                                                       |      |     
|                                                                                     |      |     
|EXPENSES:                                                                            |      |     
|Chemical expense - cost of goods sold                                                |      |     
|Equity in losses of affiliates                                                       |      |     
|Real estate expenses                                                                 |      |     
|Interest expense                                                                     |      |     
|Translation loss (gain)                                                              |      |     
|Marketing expense                                                                    |      |     
|Loss from sale of fixed assets                                                       |      |     
|General, administrative and other                                                    |      |     
|                                                                                     |      |     
|Total expenses                                                                       |      |     
|                                                                                     |      |     
|Loss before income taxes                                                             |      |     
|Provision for income taxes (tax benefits)                                            |      |     
|                                                                                     |      |     
|Net loss                                                                             |      |     
|Less: Net income (loss) attributable to noncontrolling interests                     |      |     
|                                                                                     |      |     
|Net loss from continuing operations                                                  |      |     
|                                                                                     |      |     
|                                                                                     |      |     
|Basic and diluted EPS:                                                               |      |     
|                                                                                     |      |     
|Loss per share                                                                       |      |     
|                                                                                     |      |     
|                                                                                     |      |     
|Shares used in EPS calculation (in thousands)                                        |      |     
|                                                                                     |      |     
|                                                                                     |      |     

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

4

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

|NINE MONTHS ENDED SEPTEMBER 30,                                          | 2009 | 2008
|------------------------------------------------------------------------ | ---- | ----
|
|
|
|
|Cash flows from operating activities:                                    |      |     
|Net loss for the period                                                  |      |     
|Adjustments to reconcile net loss for the period to net cash provided by |      |     
|(used in) operating activities:                                          |      |     
|Equity in losses of affiliates                                           |      |     
|Realized and unrealized gain on investments, net                         |      |     
|Depreciation and amortization expense                                    |      |     
|Loss from sale of fixed assets                                           |      |     
|Non cash stock based compensation                                        |      |     
|Translation (gain) loss                                                  |      |     
|Decrease (increase) in other assets                                      |      |     
|Decrease (increase) in inventories                                       |      |     
|Decrease (increase) in accounts receivable                               |      |     
|Increase  in accounts payable, accrued expenses and other                |      |     
|Investments made in trading securities                                   |      |     
|Proceeds from sale of trading securities                                 |      |     
|Gain from change in ownership interest in a subsidiary                   |      |     
|Dividends received from affiliates                                       |      |     
|                                                                         |      |     
|                                                                         |      |     
|Net cash provided (used in) by operating activities                      |      |     
|                                                                         |      |     
|                                                                         |      |     
|Cash flows from investing activities:                                    |      |     
|Deposits, notes and loans receivable collected                           |      |     
|Deposits, notes and loans receivable granted                             |      |     
|Capital improvements                                                     |      |     
|Investments made in affiliates and others                                |      |     
|Investments made in available for sale shares                            |      |     
|Proceeds from sale of available for sale shares                          |      |     
|Proceeds from sale of investments                                        |      |     
|Proceeds from sale of fixed assets                                       |      |     
|                                                                         |      |     
|                                                                         |      |     
|Net cash used in investing activities                                    |      |     
|                                                                         |      |     

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

5

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

|NINE MONTHS ENDED SEPTEMBER 30,                                         | 2009 | 2008
|----------------------------------------------------------------------- | ---- | ----
|
|
|
|
|Cash flows from financing activities:                                   |      |     
|Notes and loans payable received                                        |      |     
|Notes and loans payable repaid                                          |      |     
|Proceeds from issuance of debentures                                    |      |     
|Distribution to minority                                                |      |     
|Deferred expense relating to issuance of debentures                     |      |     
|Proceeds from exercise of stock option and warrants                     |      |     
|Debentures repaid and shares repurchased                                |      |     
|                                                                        |      |     
|Net cash (used in) 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 non-cash investing and financing activities- |      |     
|conversion of a convertible debenture in subsidiary                     |      |     
|                                                                        |      |     
|                                                                        |      |     

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

6

---

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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars in thousands)
Unaudited

|                              | Ampal
American Israel Corporation |  | 
|----------------------------- | --------------------------------- |  | 
|
|
|
|
|
|BALANCE AT JANUARY 1, 2009    |                                   |  | 
|CHANGES DURING 2009:          |                                   | 
|Net loss for the period       |                                   |  | 
|Unrealized loss from          |                                   | 
|marketable securities         |                                   |  | 
|Foreign currency              |                                   | 
|translation adjustments       |                                   |  | 
|                              |                                   |  | 
|Total comprehensive loss      |                                   |  | 
|Purchase of  292,103 shares   |                                   |  | 
|Share based compensation      |                                   | 
|expense                       |                                   |  | 
|                              |                                   |  | 
|BALANCE AT SEPTEMBER 30, 2009 |                                   |  | 
|                              |                                   |  | 
|                              |                                   |  | 

*In thousands

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

7

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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars in thousands)
Unaudited

|                              | Ampal
American Israel Corporation |  | 
|----------------------------- | --------------------------------- |  | 
|
|
|
|
|BALANCE AT JANUARY 1, 2008    |                                   |  | 
|CHANGES DURING 2008:          |                                   | 
|Net Loss for the period       |                                   |  | 
|Unrealized gain from          |                                   | 
|marketable securities         |                                   |  | 
|Foreign currency              |                                   | 
|translation adjustments       |                                   |  | 
|                              |                                   |  | 
|Total comprehensive loss      |                                   |  | 
|Reissuance of 89,750          |                                   | 
|treasury stock for exercise   |                                   | 
|of stock option               |                                   |  | 
|Share based compensation      |                                   | 
|expense                       |                                   |  | 
|                              |                                   |  | 
|BALANCE AT SEPTEMBER 30, 2008 |                                   |  | 
|                              |                                   |  | 
|                              |                                   |  | 

*In thousands

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

8

---

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AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIESNOTES TO THE CONDENSED 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
accompanying unaudited condensed consolidated financial statements of the
                    Company have been prepared in accordance with generally accepted
accounting                     principles (GAAP), in the United States of
America, for interim                     financial information and with the instructions
to Form 10-Q and Article 10 of                     Regulation S-X. Accordingly, they do
not include all of the information and                     notes required by GAAP for
complete financial statements. In the opinion of                     management, all
adjustments (consisting of normal recurring accruals) considered
                    necessary for a fair presentation have been included. Operating
results for the                     interim period are not necessarily indicative of the
results that may be                     expected for the full year. You should read these
interim condensed consolidated                     financial statements in conjunction
with the audited consolidated financial                     statements in the Annual
Report on Form 10-K for the year ended December 31,                     2008, filed with
the Securities and Exchange Commission.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reference
should be made to the Companys consolidated financial statements for the year ended
December 31, 2008 for a description of the critical accounting policies. Also, reference
should be made to the notes to the Companys December 31, 2008 consolidated
financial statements for additional information regarding the Companys consolidated
financial condition, results of operations and cash flows.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | ASC
105 (formerly SFAS No. 168)
| | -------------------------------

| | In
June 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Codification (ASC) 105, Generally Accepted Accounting
Principles (formerly Statement of Financial Accounting Standards (SFAS)
No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principlesa replacement of FASB Statement No. 168 (SFAS
168)). The statement confirmed that the FASB Accounting Standards Codification (the
Codification) will become the single official source of authoritative U.S. GAAP
(other than guidance issued by the SEC), superseding existing FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force (EITF), and related
literature. Upon the effectiveness of the codification, only one level of authoritative
U.S. GAAP will exist. All other literature will be considered non-authoritative. The
Codification does not change U.S. GAAP; instead, it introduces a new structure that
is organized in an easily accessible, user-friendly online research system. The
Codification, which changes the referencing of financial standards, became effective for
interim and annual periods ending on or after September 15, 2009, and the adoption
did not have impact on our financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
810 (formerly SFAS No. 167)
| | -------------------------------

| | In
June 2009, the FASB issued accounting guidance contained within ASC 810, Consolidation,
regarding the consolidation of variable interest entities (formerly SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)). Amendments to FASB
Interpretation No. 46(R), ASC 810 is intended to improve financial reporting by
providing additional guidance to companies involved with variable interest entities and
by requiring additional disclosures about a companys involvement in variable
interest entities. This standard is effective for interim and annual periods ending after
November 15, 2009. We are currently assessing the potential impacts, if any, on our
consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
820 (formerly FSP No. 157-4)
| | --------------------------------

| | In
April 2009, the FASB issued ASC 820 (formerly FSP No. 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset and Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly), which
provides additional guidance in accordance with ASC 820, Fair Value Measurements, when
the volume and level of activity for the asset or liability has significantly decreased.
ASC 820 is effective for interim and annual reporting periods ending after June 15,
2009, and the adoption did not have a material impact on our financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
825 (formerly FSP No. 107-1)
| | --------------------------------

| | In
April 2009, the FASB issued ASC 825, Financial Instruments (formerly
FASB Staff Position 107-1, Interim Disclosures about Fair Value of Financial
Instruments). ASC 825 requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well as in
annual financial statements. This standard also requires those disclosures in summarized
financial information at interim reporting periods ending after June 15, 2009, and
the adoption did not have a material impact on our financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

---

| | ASC
820 (formerly SFAS No. 157)
| | -------------------------------

| | In
September 2006, the FASB issued ASC 820 (formerly SFAS No. 157, Fair Value
Measurements, as it applies to non-financial assets and liabilities that are not
required to be measured at fair value on a recurring (at least annual) basis), which
provides guidance on how to measure assets and liabilities that use fair value. ASC 820
will apply whenever another US GAAP standard requires (or permits) assets or liabilities
to be measured at fair value but does not expand the use of fair value to any new
circumstances. This standard also will require additional disclosures in both annual and
quarterly reports. ASC 820 is for fiscal years beginning after November 15, 2007 (January
1, 2008 for the Company). In February 2008, the FASB deferred for one additional year the
effective date of ASC 820 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually). The adoption of the parts of ASC 820 that
became effective in 2008 did not have a material impact on the Companys financial
statements. The adoption of the remaining parts of ASC 820 did not have a material impact
on our financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
805 (formerly SFAS No. 141R)
| | --------------------------------

| | In
December 2007, the FASB issued ASC 805-10-65-1(formerly SFAS No. 141 (revised 2007),
Business Combinations (SFAS 141R) which replaces SFAS No. 141,
Business Combination). ASC 805-10-65-1 establishes the principles and
requirements for how an acquirer: (1) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (2) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and (3) discloses the business
combination. This Statement applies to all transactions in which an entity obtains
control of one or more businesses, including transactions that occur without the transfer
of any type of consideration. ASC 805-10-65-1 will be effective on a prospective basis
for all business combinations on or after January 1, 2009, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies.
Early adoption is not allowed. The adoption of ASC 805-10-65-1 did not have a material
impact on our financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
810 (formerly SFAS No. 160)
| | -------------------------------

| | In
December 2007, the FASB issued accounting guidance contained within ASC 810, Consolidation,
regarding noncontrolling interests (formerly SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements) (ASC 810). ASC
810-10-65 amends ARB No. 51 and establishes accounting and reporting standards that
require noncontrolling interests (previously referred to as minority interest) to be
reported as a component of equity, changes in a parents ownership interest while
the parent retains its controlling interest be accounted for as equity transactions, and
upon a loss of control, retained ownership interest will be remeasured at fair value,
with any gain or loss recognized in earnings. The presentation and disclosure
requirements of ASC 810-10-65 were applied retrospectively. Other than the change in
presentation of noncontrolling interests, the adoption of ASC 810-10-65 did not have a
material impact on our financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
815 (formerly SFAS No. 161)
| | -------------------------------

| | In
March 2008, FASB issued the disclosure requirements within ASC 815, Derivatives and
Hedging (formerly SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities, an Amendment of FASB No. 133). ASC 815 is intended to
improve transparency in financial reporting by requiring enhanced disclosures of an entitys
derivative instruments and hedging activities and their effects on the entitys
financial position, financial performance, and cash flows. The disclosure requirements
apply to all derivative instruments within the scope of ASC 815. The standard also
applies to non-derivative hedging instruments and all hedged items designated and
qualifying under ASC 815. Other than the required disclosures (see note 10), the adoption
of ASC 815 did not have a material impact on our financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
350-30 (formerly SFAS No. 142-3)
| | ------------------------------------

| | In
April 2008, the FASB issued ASC 350-30, Goodwill and Other Intangible Assets. (formerly
FASB Staff Position (FSP) No. 142-3, Determination of the Useful Life of
Intangible Assets), which amends the factors that must be considered in developing
renewal or extension assumptions used to determine the useful life over which to amortize
the cost of a recognized intangible asset. ASC 350-30 requires an entity to consider its
own assumptions about renewal or extension of the term of the arrangement, consistent
with its expected use of the asset, and is an attempt to improve consistency between the
useful life of a recognized intangible asset under ASC 350-30 and the period of expected
cash flows used to measure the fair value of the asset under ASC 805-10-65-1, Business
Combinations. The adoption of ASC 350-30 did not have a material impact on our
financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

---

|4. | Cash
and cash equivalents
|-- | -------------------------

| | Cash
equivalents are short-term, highly liquid investments (bank accounts and bank deposits)
that have original maturity dates of three months or less and are readily convertible
into cash.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
equivalents equal to $2.0 million have been allocated as a compensating balance for
various loans provided to the Company and would therefore be unavailable if the Company
wished to pledge them in order to provide an additional source of cash.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Inventories
 mainly chemicals and other materials intended for sale are
                    valued at the lower of cost or market. Cost is determined based on
the moving                     average basis.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | East
Mediterranean Gas Company
|-- | ------------------------------

| | East
Mediterranean Gas Co. S.A.E, an Egyptian joint stock company (EMG), organized
in 2000 in accordance with the Egyptian Special Free Zones system, has been granted the
right to export natural gas from Egypt to Israel, other locations in the East
Mediterranean basin and to other countries via pipelines or otherwise. EMG has linked the
Israeli energy market with the Egyptian national gas grid via an East Mediterranean
pipeline with the first gas delivery occurring in May 2008. EMG is the developer, owner
and operator of the pipeline and its associated facilities on shore in both the point of
departure at El Arish, Egypt and the point of entry in Ashkelon, Israel. In the Israeli
market, EMGs first contract was signed in late 2005 with the Israel Electric
Corporation (IEC) for a quantity of 2.1 BCM annually over 15-20 years. A
second contract with Dorad Energy, Ltd. (Dorad) (an independent power
producer) currently provides for for a quantity of 0.735 BCM annually over 17-22 years.
On October 19, 2009, EMG entered into three contracts with respect to three combined
cycle cogeneration plants: Ashdod Energy Ltd.; Ramat Negev Energy Ltd.; and Solad Energy
Ltd., with a total production capacity of 270 Megawatts. The contracts provide for gas
deliveries over an 18 year contract period. EMG is in the process of negotiating several
additional agreements covering much of the anticipated 7.0 BCM annually earmarked for the
Israeli market. This project is governed by an agreement signed between the governments
of Israel and Egypt which designates EMG as the authorized exporter of Egyptian gas,
secures EMGs tax exemption in Israel and provides for the Egyptian governments
guarantee for the delivery of the gas to the Israeli market.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 29, 2007, Ampal and the Israel Infrastructure Fund (IIF), leading a
group of institutional investors, purchased a 4.3% interest in EMG, through Merhav Ampal
Energy Holdings, LP, an Israeli limited partnership (the Joint Venture), from
Merhav M.N.F Ltd. (Merhav) for a purchase price of approximately $95.4
million, using funds provided by the Investors. In addition to the Joint Ventures
purchase from Merhav, Ampal contributed into the Joint Venture an additional 4.3%
interest in EMG already held by Ampal. The Joint Venture now holds a total of 8.6% of the
outstanding shares of EMG. Ampals contribution was valued at the same price per EMG
share as the Joint Ventures purchase. This amount is equivalent to the purchase
price (on a per share basis) paid by Ampal for its December 2006 purchase of EMG shares
from Merhav.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2008, the Government of Egypt adopted legislation that purports to revoke the tax
free status of existing free zone companies operating in the iron, cement, steel,
petroleum, liquification and transport of natural gas industries. The legislation, by its
terms, would apply to EMG. Ampal understands that the impact of this recent change in law
would be to impose a 20% tax on EMGs net future income. It is not clear to what
extent the legislation will be enforced or whether it is valid under the Egyptian
constitution. The legislation is, to Ampals understanding, unusual, and it is not
clear whether EMG will be successful in its negotiations with the Egyptian authorities or
whether EMG shall choose to challenge this legislation in court, and therefore what if
any impact the legislation will ultimately have on EMG.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of September 30, 2009, the Companys financial statements reflect a 16.8% interest
in shares of EMG, with 8.2% held directly and 8.6% held through the Joint Venture (of
which Ampal owns 50%). In June 2009, EMG and its upstream supplier in Egypt entered into
an amendment (Amendment) to the Gas Sales & Purchase Agreement (GSPA)
with regard to repricing gas sold to EMG. The Amendment to the GSPA includes price
increases, periodic price adjustments, and new gas delivery targets. Subsequently, EMG
entered into negotiations with both of its contracted clients, IEC and Dorad, in order to
amend their contracts to reflect the provisions contained in the Amendment. The Dorad
amendment was signed in July 2009 and the IEC amendment was signed and approved by IECs
board of directors, and is subject inter alia for the approval of IECs shareholders
meeting.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | To
the best of Ampals knowledge, EMG is currently supplying the full contracted
quantities of the gas.
| | -------------------------------------------------------------------------------------------------------

11

---

---

|7. | Acquisition
of Gadot
|-- | --------------------

| | On
December 3, 2007, Ampal completed the purchase of a 65.5% controlling interest (63.66% on
a fully diluted basis) in Gadot Chemical Tankers and Terminals Ltd. (Gadot)
through its wholly owned subsidiary, Merhav Ampal Energy Ltd.. On June 3, 2008, Ampal
purchased an additional 14.98% bringing its controlling interest to 79.3% (78.88% on a
fully diluted basis) and on August 12, 2008, Ampal purchased an additional 20.6% bringing
its controlling interest to 100% (99.99% on a fully diluted basis). Total consideration
including direct transaction expenses was $132.3 million. The cash consideration was
financed with Ampals own resources and with borrowings in the amount of $87.5
million.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Gadot
was founded in 1958 as a privately held Israeli company, with operations in distribution
and marketing of liquid chemicals for raw materials used in industry. Since then, Gadot
has expanded into a group of companies, which currently forms Israels leading
chemical distribution organization. Through its subsidiaries, Gadot ships, stores, and
distributes liquid chemicals, oils, and a large variety of materials to countries across
the globe, with an emphasis on Israel and Western Europe. In our description of Gadots
business operations, the term Gadot refers to Gadot and its consolidated
subsidiaries.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the purchase method of accounting, the total consideration of $132.3 million allocated to
Gadots identifiable tangible and intangible assets and liabilities assumed based on
their estimated fair values as of the date of the completion of the transactions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
overall identified tangible and intangible assets acquired amounted to approximately
$34.3 million and $27.8 million, respectively. The main assets included are ships and
tankers and an option to purchase and lease ships, for approximately $28.7 million and
$7.6 million, respectively, to be amortized over an estimated useful life of 12 and 4
years, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Sugarcane
Ethanol Production Project
|-- | ------------------------------------

| | On
May 29, 2008, Ampal loaned Merhav $10 million, in addition to the currently outstanding
$10 million that were loaned on December 25, 2007, to fund the sugarcane ethanol
production project (the Project) in Colombia being developed by Merhav. The
additional loan was made pursuant to the existing promissory note, dated as of December
25, 2007, by Merhav in favor of Ampal (the Promissory Note). The Promissory
Note was given in connection with an option agreement dated December 25, 2007 (the Original
Option Agreement), with Merhav providing Ampal with the option (the Option)
to acquire up to a 35% equity interest in the Project. The loan will be convertible into
all or a portion of the equity interest purchased pursuant to the Original Option
Agreement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 25, 2008, Ampal entered into an amendment (the Option Amendment) to
the Original Option Agreement. Under the Original Option Agreement, the Option expired on
the earlier of December 25, 2008 or the date (the Financing Date) on which
both (i) Merhav obtained third-party debt financing for the Project and (ii) an
unaffiliated third party holds at least a 25% equity interest in the Project. The Option
Amendment extends the expiration of the Option to the earlier of December 31, 2009 or the
Financing Date.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Option Amendment also provides that in determining the price to be paid by Ampal for
shares pursuant to the option under the Valuation Model (as defined below), the parties
have agreed to review the discount rate set forth in the Valuation Model to determine
whether the discount rate should be increased, provided, however, that the purchase price
shall not exceed the amount Ampal would have paid without giving effect to the Option
Amendment. The maximum purchase price for any interest in the Project purchased by Ampal
pursuant to the option would be (A) with respect to any portion of such interest being
purchased by conversion of the outstanding balance of the Amended Promissory Note
referred to below, the lesser of (i) a price based on a currently agreed valuation model
as updated from time to time to reflect changes in project, financing and other similar
costs (the Valuation Model) as such updates are reviewed by Houlihan Lokey
Howard &Zukin at the time of the Options exercise or (ii) the lowest price paid
by any unaffiliated third party for an interest in the Project, or (B) with respect to
any portion of such interest in the Project being purchased in excess of the balance of
the Amended Promissory Note, the lowest price paid by an unaffiliated third party for its
interest in the Project, unless no unaffiliated third party has purchased an interest in
the Project, in which case the purchase price will be based on the Valuation Model.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
consideration for Merhav entering into the Option Amendment, Ampal agreed to certain
amendments to the Promissory Note reflected in an Amended and Restated Promissory Note,
dated December 25, 2008 (the Amended Promissory Note). The Amended Promissory
Note provides for (i) an increase in the annual interest rate from LIBOR plus 2.25% to
LIBOR plus 3.25% and (ii) an extension of the maturity date of the Promissory Note to
December 31, 2009. As a condition to amending and restating the Promissory Note, Ampal
received a personal guaranty dated as of December 25, 2008, from Yosef A. Maiman
personally guaranteeing the obligations of Merhav under the Amended Promissory Note.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
loan continues to be secured by Merhavs pledge to Ampal, pursuant to a Pledge
Agreement dated December 25, 2007, between Merhav and Ampal, of all of the shares of Ampals
Class A Common Stock, par value $1.00 per share (Class A Stock), owned by
Merhav.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---

---

| | Yosef
A. Maiman, the Chairman, President and CEO of Ampal and a member of the controlling
shareholders group of Ampal, is the sole owner of Merhav. Because of the foregoing
relationship, a special committee of the Board of Directors composed of Ampals
independent directors negotiated and approved the transaction.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Services
and Management Agreements  related party transactions
|-- | ---------------------------------------------------------------

| | Ampal
and Gadot entered into a services agreement pursuant to which Gadot shall pay Ampal
management fees, calculated as a percentage of Gadots profits, in consideration for
management services rendered by Ampal to Gadot.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Ampal
and Merhav entered into an agreement pursuant to which Ampal shall pay Merhav annual
management fees totaling in the aggregate NIS 10 million ($2.7 million), in consideration
for management, marketing, financial, development and other administrative services
rendered by Merhav to Ampal.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
stipulated above, Yosef A. Maiman, the Chairman, President and CEO of Ampal and a member
of the controlling shareholders group of Ampal, is the sole owner of Merhav. Because of
the foregoing relationship, a special committee of the Board of Directors composed of
Ampals independent directors negotiated and approved the transaction between Ampal
and Merhav.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | Derivatives
and Other Financial Instruments
|--- | -------------------------------------------

| | As
stated above, in March 2008, the FASB issued ASC 815 (formerly FAS 161), Disclosures
about Derivative Instruments and Hedging Activities. ASC 815 is an amendment of ASC
815-15 (formerly SFAS 133, Accounting for Derivative Instruments and Hedging Activities).
This statement requires enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of financial reporting. ASC 815
became effective for the Company on January 1, 2009 and we have incorporated the
additional disclosure information for ASC 815 below.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is exposed to certain risks relating to its ongoing business operations,
including financial, market, political, and economic risks. The following discussion
provides information regarding the Companys exposure to the risks of changing
commodity prices, interest rates, and foreign currency exchange rates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys derivative activities are subject to managements discretion.
| | ---------------------------------------------------------------------------

| | The
interest rate and foreign exchange contracts are held for purposes other than trading.
They are used primarily to mitigate uncertainty and volatility, and to in order to cover
underlying exposures. A swap contract was entered into to convert some of the Companys
New Israeli Shekel denominated debt in the amount of NIS 150 million ($43.9 million) into
U.S. Dollar denominated debt and to convert Israeli interest rates into LIBOR interest
rates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 1, 2009, the Company signed a interest rate swap contract in order to convert some
of the companys LIBOR interest rate denominated debt in the amount of $43.7 million
into fixed interest rate debt.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
use foreign currency forward contracts to mitigate fluctuations in foreign currency
exchange rates due to variations in payment or receipt of currencies other than the
Companys functional currency. We use contracts to purchase U.S. Dollars and sell
Euros, contracts to purchase Euros and sell U.S. Dollars and contracts to purchase U.S.
Dollars and sell New Israeli Shekels.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
enter into derivative financial instruments, including swaps and forward agreements. We
report the fair value of the derivatives on our balance sheet. The derivatives used are
not designated as a hedging instrument under ASC 815. Changes in fair value are
recognized in earnings in the period of change.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following summarizes the gross fair market value of all derivative instruments and their
location in our consolidated balance sheet, and indicates what instruments are in an
asset or liability position.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Asset Derivatives

---

| |                         |  | (U.S. Dollars in thousands)
| | ----------------------- |  | ---------------------------
|
|
|
|
| | SWAP contracts          |  |                            
| | Exchange rate contracts |  |                            

13

---

---

Liability Derivatives

---

| |                         |  | (U.S. Dollars in thousands)
| | ----------------------- |  | ---------------------------
|
|
|
|
| | SWAP contracts          |  |                            
| | Exchange rate contracts |  |                            

Statement of Operation

---

| |                                              |  | (U.S. Dollars in thousands)
| | -------------------------------------------- |  | ---------------------------
|
|
|
|
| |                                              |  |                            
| | SWAP contract                                |  |                            
| | Interest rate SWAP contract                  |  |                            
| | Exchange rate contracts  Translation expense |  |                            

|11. | Fair
Value Measurements
|--- | -----------------------

| | In
September 2006, the FASB issued ASC 820 (formerly SFAS No. 157, Fair
Value Measurements), which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosures
about fair-value measurements. The Company adopted ASC 820 effective January 1, 2008
for all financial assets and liabilities and any other assets and liabilities that are
recognized or disclosed at fair value on a recurring basis. Although the adoption of ASC
820 did not materially impact the Companys financial condition, results of
operations or cash flows, the Company is required to provide additional disclosures
within its condensed consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ASC
820 defines fair value as the price that would be received to sell an asset or paid to
transfer the liability (an exit price) in an orderly transaction between market
participants and also establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The fair value hierarchy within ASC 820 distinguishes between three
levels of inputs that may be utilized when measuring fair value including level 1 inputs
(using quoted prices in active markets for identical assets or liabilities), level 2
inputs (using inputs other than level 1 prices such as quoted prices for similar assets
and liabilities in active markets or inputs that are observable for the asset or
liability) and level 3 inputs (unobservable inputs supported by little or no market
activity based on the companys own assumptions used to measure assets and
liabilities). A financial assets or liabilitys classification within the
above hierarchy is determined based on the lowest level input that is significant to the
fair value measurement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company also adopted ASC 825 (formerly SFAS 159, The Fair Value Option for
Financial Assets and Financial Liabilities). ASC 825 permits entities to choose to
measure many financial assets and financial liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are reported in
earnings. ASC 825 is effective for fiscal years after November 15, 2007. The Company did
not elect to apply the fair value option available under ASC 825 for any of its eligible
instruments.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following section describes the valuation methodologies used by the Company to measure
derivative contracts at fair value, including an indication of the level in the fair
value hierarchy in which each instrument is generally classified. Where appropriate, the
description includes details of the valuation models, the key inputs to those models, and
any significant assumptions.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

---

| | Derivative
contracts are valued using quoted market prices and significant other observable and
unobservable inputs. Such financial instruments consist of aluminum, energy, interest
rate, and foreign exchange contracts. The fair values for the majority of these
derivative contracts are based upon current quoted market prices. These financial
instruments are typically exchange-traded and are generally classified within Level 1 or
Level 2 of the fair value hierarchy depending on whether the exchange is deemed to be an
active market or not.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
assets and liabilities measured at fair value on a recurring basis as at September 30,
2009 consisted of the following (in thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair
Value Measurements as Using at :
| | -------------------------------------

| |                                 | September 30, 2009 | December 31, 2008
| | ------------------------------- | ------------------ | -----------------
|
|
|
|
| | Trading securities *            |                    |                  
| | Available for sale securities * |                    |                  
| | Derivative assets **            |                    |                  
| |                                 |                    |                  
| | Derivative liabilities **       |                    |                  
| |                                 |                    |                  
| | Total                           |                    |                  
| |                                 |                    |                  
| |                                 |                    |                  

| | Marketable
securities that are classified in level 1 consist of available-for-sale and trading
securities for which market prices are readily available, derivative assets that are
classified in level 2 are determined based on inputs that can be derived from information
available in publicly quoted markets. Unrealized gains or losses from available-for-sale
securities are recorded in accumulated other comprehensive (loss) income.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *
The trading securities and available for sale securities are mainly traded debentures
| | ---------------------------------------------------------------------------------------

| | **
See note 10
| | --------------

| | The
carrying amount of the Companys traded debentures as of September 30, 2009 is $212
million. The market value of such debentures, based on the closing price of those
debentures on September 30, 2009 in the Tel Aviv Stock Exchange, was $ 179 million. The
total carrying value of long-term loans as of September 30, 2009 was $235 million. The
Company estimates that the fair value of the long-term loans approximates their carrying
value, since substantially all of them bear non-fixed interest and there is no
significant change in the credit risk of such loans.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | Segment
information presented below, results primarily from operations in           Israel.
|--- | -------------------------------------------------------------------------------------------

| | ASC
280 (formerly SFAS 131 Disclosure about Segments of an Enterprise and Related
Information) establishes annual and interim reporting standards for an enterprises
operating segments and related disclosures about its products, services, geographic areas
and major customers. Segment information presented below results primarily from
operations in Israel.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
chemical segment consists of Gadot which operates in the distribution and marketing of
liquid chemicals for raw materials used in the chemical industry.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
energy segment consists of the investment in EMG, an Egyptian joint stock company, which
holds the right to supply and supplies natural gas to Israel through an underwater
pipeline from Egypt to Israel. This investment is accounted for under the cost method.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
leisure-time segment consists of an affiliate, Country Club Kfar Saba Ltd., the Companys
51%-owned subsidiary, located in Israel.
| | --------------------------------------------------------------------------------------------------------------------------------------

| | The
finance segment consists of all other activities which are not part of any of the above
segments.
| | -----------------------------------------------------------------------------------------------------

15

---

---

| | NINE MONTHS ENDED SEPTEMBER 30,  | 2009 | 2008
| | -------------------------------- | ---- | ----
|
|
|
|
| | Revenues:                        |      |     
| | Chemicals                        |      |     
| | Finance                          |      |     
| | Leisure-time                     |      |     
| |                                  |      |     
| | Total consolidated revenues      |      |     
| |                                  |      |     
| |                                  |      |     
| | Pre-tax Operating Gain (loss):   |      |     
| | Chemicals                        |      |     
| | Finance                          |      |     
| | Leisure-time                     |      |     
| |                                  |      |     
| |                                  |      |     
| | Equity in losses of affiliates   |      |     
| |                                  |      |     
| | Total consolidated pretax (loss) |      |     
| |                                  |      |     
| |                                  |      |     
| | Total Assets:                    |      |     
| | Chemicals                        |      |     
| | Finance                          |      |     
| | Energy                           |      |     
| | Leisure-Time                     |      |     
| | Inter- segments adjustments      |      |     
| |                                  |      |     
| | Total consolidated assets        |      |     
| |                                  |      |     
| |                                  |      |     

| | Corporate
office expense is principally applicable to the financing operations and has been charged
to that segment. Revenues and pre-tax operating gain above exclude equity in earnings of
affiliates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | The
following table summarizes securities that were not included in the
                    calculations of diluted earnings per share of Class A Stock for the
periods                     ended September 30, 2009 and 2008 because such shares are
anti-dilutive.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (Shares in thousands)                    | Nine Months Ended
September 30,
| | ---------------------------------------- | -------------------------------
|
|
|
|
| | Shares resulting from Options and Rights |                                
| |                                          |                                

|14. | LEGAL
PROCEEDINGS:
|--- | ------------------

| | None.
| | -----

16

---

---

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  American
Israel Corporations (Ampal, and collectively with its subsidiaries, the
Company) consolidated financial statements is in conformity with accounting
principles generally accepted in the United States (GAAP) 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 Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 for a summary of all of Ampals significant
accounting policies.

No significant updates have occurred
since our last annual report on form 10-K.

Revenue Recognition

The Company recognizes revenue in
accordance with Staff Accounting Bulletin ASC 605 (formerly SAB No. 104  Revenue
Recognition). Revenue is recognized when (a) the significant risks and rewards of
ownership of the goods have been transferred to the buyer; (b) the Company retains
neither continuing managerial involvement to the degree usually associated with ownership
nor effective control over the goods sold; (c) the amount of revenue can be measured
reliably; (d) it is probable that the economic benefits associated with the transaction
will flow to the Company; and (e) the costs incurred or to be incurred in respect of the
transaction can be measured reliably.

Chemical income derives from the
following activities: sales of a wide range of liquid chemicals, providing maritime
shipping services of chemicals by ships and providing other services which include
logistics and storage services for chemicals.

Revenue from services is recognized
as follows:

| |  | Revenues
arising from the provision of marine transport services proportionally over the period of
the marine transport services. As to voyages uncompleted in which a loss is expected, a
full provision is made in the amount of the expected loss.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Revenues
from chemical brokerage commissions are recognized when the right to receive them is
created.
| | - | ------------------------------------------------------------------------------------------------------

| |  | Rental
income is recorded over the rental period. Revenues from services provided to country-club subscribers
are recognized ratably over the contractual period.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Income
from other services is recognized over the period during which those services are
performed.
| | - | ---------------------------------------------------------------------------------------------------

Recently adopted and recently
Issued Accounting Pronouncements

ASC 105 (formerly SFAS No. 168)

In
June 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Codification (ASC) 105, Generally Accepted Accounting
Principles (formerly Statement of Financial Accounting Standards (SFAS)
No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principlesa replacement of FASB Statement No. 168 (SFAS
168)). The statement confirmed that the FASB Accounting Standards Codification (the
Codification) will become the single official source of authoritative U.S. GAAP
(other than guidance issued by the SEC), superseding existing FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force (EITF), and related
literature. Upon the effectiveness of the codification, only one level of authoritative
U.S. GAAP will exist. All other literature will be considered non-authoritative. The
Codification does not change U.S. GAAP; instead, it introduces a new structure that
is organized in an easily accessible, user-friendly online research system. The
Codification, which changes the referencing of financial standards, became effective for
interim and annual periods ending on or after September 15, 2009, and the adoption
did not have impact on our financial statements.

ASC 810 (formerly SFAS No. 167)

In
June 2009, the FASB issued accounting guidance contained within ASC 810, Consolidation,
regarding the consolidation of variable interest entities (formerly SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)). Amendments to FASB
Interpretation No. 46(R), ASC 810 is intended to improve financial reporting by
providing additional guidance to companies involved with variable interest entities and
by requiring additional disclosures about a companys involvement in variable
interest entities. This standard is effective for interim and annual periods ending after
November 15, 2009. We are currently assessing the potential impacts, if any, on our
consolidated financial statements.

17

---

---



ASC 820 (formerly FSP No. 157-4)

In
April 2009, the FASB issued ASC 820 (formerly FSP No. 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset and Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly), which
provides additional guidance in accordance with ASC 820, Fair Value Measurements, when
the volume and level of activity for the asset or liability has significantly decreased.
ASC 820 is effective for interim and annual reporting periods ending after June 15,
2009, and the adoption did not have a material impact on our financial statements.

ASC 825 (formerly FSP No. 107-1)

In
April 2009, the FASB issued ASC 825, Financial Instruments (formerly
FASB Staff Position 107-1, Interim Disclosures about Fair Value of Financial
Instruments). ASC 825 requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well as in
annual financial statements. This standard also requires those disclosures in summarized
financial information at interim reporting periods ending after June 15, 2009, and
the adoption did not have a material impact on our financial statements.

ASC 820 (formerly SFAS No. 157)

In
September 2006, the FASB issued ASC 820 (formerly SFAS No. 157, Fair Value
Measurements, as it applies to non-financial assets and liabilities that are not
required to be measured at fair value on a recurring (at least annual) basis), which
provides guidance on how to measure assets and liabilities that use fair value. ASC 820
will apply whenever another US GAAP standard requires (or permits) assets or liabilities
to be measured at fair value but does not expand the use of fair value to any new
circumstances. This standard also will require additional disclosures in both annual and
quarterly reports. ASC 820 is for fiscal years beginning after November 15, 2007 (January
1, 2008 for the Company). In February 2008, the FASB deferred for one additional year the
effective date of ASC 820 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually). The adoption of the parts of ASC 820 that
became effective in 2008 did not have a material impact on the Companys financial
statements. The adoption of the remaining parts of ASC 820 did not have a material impact
on our financial statements.

ASC 805 (formerly SFAS No. 141R)

In
December 2007, the FASB issued ASC 805-10-65-1(formerly SFAS No. 141 (revised 2007),
Business Combinations (SFAS 141R) which replaces SFAS No. 141,
Business Combination). ASC 805-10-65-1 establishes the principles and
requirements for how an acquirer: (1) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (2) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and (3) discloses the business
combination. This Statement applies to all transactions in which an entity obtains
control of one or more businesses, including transactions that occur without the transfer
of any type of consideration. ASC 805-10-65-1 will be effective on a prospective basis
for all business combinations on or after January 1, 2009, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies.
Early adoption is not allowed. The adoption of ASC 805-10-65-1 did not have a material
impact on our financial statements.

ASC 810 (formerly SFAS No. 160)

In
December 2007, the FASB issued accounting guidance contained within ASC 810, Consolidation,
regarding noncontrolling interests (formerly SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements) (ASC 810). ASC
810-10-65 amends ARB No. 51 and establishes accounting and reporting standards that
require noncontrolling interests (previously referred to as minority interest) to be
reported as a component of equity, changes in a parents ownership interest while
the parent retains its controlling interest be accounted for as equity transactions, and
upon a loss of control, retained ownership interest will be remeasured at fair value,
with any gain or loss recognized in earnings. The presentation and disclosure
requirements of ASC 810-10-65 were applied retrospectively. Other than the change in
presentation of noncontrolling interests, the adoption of ASC 810-10-65 did not have a
material impact on our financial statements.

ASC 815 (formerly SFAS No. 161)

In
March 2008, FASB issued the disclosure requirements within ASC 815, Derivatives and
Hedging (formerly SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities, an Amendment of FASB No. 133). ASC 815 is intended to
improve transparency in financial reporting by requiring enhanced disclosures of an entitys
derivative instruments and hedging activities and their effects on the entitys
financial position, financial performance, and cash flows. The disclosure requirements
apply to all derivative instruments within the scope of ASC 815. The standard also
applies to non-derivative hedging instruments and all hedged items designated and
qualifying under ASC 815. Other than the required disclosures (see note 10), the adoption
of ASC 815 did not have a material impact on our financial statements.

18

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ASC 350-30 (formerly SFAS No.
142-3)

In
April 2008, the FASB issued ASC 350-30, Goodwill and Other Intangible Assets. (formerly
FASB Staff Position (FSP) No. 142-3, Determination of the Useful Life of
Intangible Assets), which amends the factors that must be considered in developing
renewal or extension assumptions used to determine the useful life over which to amortize
the cost of a recognized intangible asset. ASC 350-30 requires an entity to consider its
own assumptions about renewal or extension of the term of the arrangement, consistent
with its expected use of the asset, and is an attempt to improve consistency between the
useful life of a recognized intangible asset under ASC 350-30 and the period of expected
cash flows used to measure the fair value of the asset under ASC 805-10-65-1, Business
Combinations. The adoption of ASC 350-30 did not have a material impact on our
financial statements.

Results of Operations

Changes in pricing and demand for
chemicals

The overall demand for chemical
products, especially commodity chemicals, is highly dependent on general economic
conditions. In the past quarter, the price of crude oil slightly increased, which led to
a moderate price increase in commodity chemicals. The demand for chemicals is also
showing a moderate increase. The G-7s economic growth indicators reveal an ease in
the recession. It is too early to state that it is the end of the slow down, as private
consumption is still slow.

Nine months ended September 30,
2009 compared to nine months ended September 30, 2008

The Company recorded a consolidated
net loss of $19.0 million for the nine months ended September 30, 2009, compared to a net
loss of $40.3 million for the corresponding period in 2008. The loss in 2009 is primarily
attributable to the interest expenses resulting from the issuance of debentures and loans
for the financing of Gadots purchase which was partially offset by translation
gain, while the loss in 2008 was primarily attributable to interest expenses and
translation loss.

In the nine months ended September
30, 2009 and 2008, the Company included the following certain data of Gadot (in millions
of dollars):

| |                                                   | September 30, 2009 | September 30, 2008
| | ------------------------------------------------- | ------------------ | ------------------
|
|
|
|
| | Chemical income                                   |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   
| | Chemical expense                                  |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   
| | Other expense (mainly general and administrative) |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   
| | Interest expense                                  |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   

In the nine months ended September
30, 2009, the Company recorded $4.8 million of marketing expense, as compared to a $8.2
million marketing expense in the corresponding period in 2008. These expenses are
attributable to Gadot and composed mainly of salary and commission expenses. The decrease
is primarily the result of a restructuring plan that took place at Gadot.

In the nine months ended September
30, 2009, the Company recorded a $24.6 million of general, administrative and other
expense, as compared to $27.3 million in the corresponding period in 2008. The decrease
is primarily the result of a restructuring plan that took place at Gadot.

In the nine months ended September
30, 2009, the Company recorded a $0.8 million of noncontrolling interests share in losses
of subsidiaries, net, as compared to $9.6 million share in losses in the corresponding
period in 2008. These losses are mainly attributable to translation losses in the notes
issued to the partners in Merhav Ampal Energy, LP, an Israeli limited partnership (the
Joint Venture), resulting from the valuation of the New Israeli Shekel
compared to the U.S. Dollar.

In the nine months ended September
30, 2009, the Company recorded a $25.7 million interest expense, as compared to a $33.3
million interest expense for the corresponding period in 2008. The interest expense
relates to the notes payable which the Company received to finance the purchase of Gadot,
issuance of the Companys debentures, the Companys notes payable and the
interest expense of the SWAP agreements. The decrease is mainly attributable to the
change in the LIBOR interest rate.

19

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In the nine months ended September
30, 2009, the Company recorded a $3.1 million translation gain, as compared to a $19.5
million translation loss for the corresponding period in 2008. The increase in
translation gain is related to a change in the valuation of the New Israeli Shekel as
compared to the U.S. Dollar, decrease of 1.1% in the nine months ended September 30,
2009, as compared to a decrease of 11.1% for the corresponding period in 2008.

The Company recorded a net loss of
$1.2 million in Equity in losses of affiliates for the nine months ended September 30,
2009, compared to a net gain in Equity in earnings of affiliates of $1.2 million for the
corresponding period in 2008.

Results of operations analyzed by
segments for nine months ended September 30:

|             | 2009 | 2008
|------------ | ---- | ----
|
|
|
|
|Revenues:    |      |     
|             |      |     
|Chemicals    |      |     
|Finance      |      |     
|Leisure-time |      |     
|             |      |     
|             |      |     
|             |      |     
|             |      |     

The Chemicals income relates solely
to Gadot and was derived from the following activities: sales of a wide range of liquid
chemicals, providing maritime shipping services of chemicals by ships and providing other
services which include logistics and storage services for chemicals.

In the nine months ended September
30, 2009, the Company recorded $296.1 million in revenue which was comprised of $287.4
million in the Chemicals segment, $6.6 million in the Finance segment and $2.1 million in
the Leisure-time segment, as compared to $427.8 million for the same period in 2008,
which was comprised of $419.6 million in the Chemicals segment, $5.9 million in the
Finance segment and $2.3 million in the Leisure-time segment. The decrease in Chemicals
revenues is primarily attributable to the slowdown in the markets, especially in Europe,
which lead the decrease in sold quantities and product prices, and also due to the
significant decrease in the demand for chemical carrier shipping. The recession and the
resulting significant decrease in the demand for chemical carrier ships were felt during
the nine months of 2009. The decrease in demand for chemical shipping lead to a steep
decline in freight rates. In addition, the decline in shipped quantities generates an
uneven shipment of chemicals, which in certain voyages, results in almost no cargo being
shipped on the return leg of a voyage.

|                               | 2009 | 2008
|------------------------------ | ---- | ----
|
|
|
|
|Expenses:                      |      |     
|                               |      |     
|Chemicals                      |      |     
|Finance                        |      |     
|Leisure-time                   |      |     
|                               |      |     
|                               |      |     
|Equity in losses of affiliates |      |     
|                               |      |     
|Total                          |      |     
|                               |      |     

In the nine months ended September
30, 2009, the Company recorded $318.9 million in expenses which was comprised of $283.3
million of expenses in the Chemicals segment, $32.4 million of expenses in the Finance
segment, $2.0 million of expenses in the Leisure-time segment and a $1.2 million loss in
Equity in earnings of affiliates, as compared to $478.4 million in expenses for the same
period in 2008 which was comprised of $420.4 million in the Chemicals segment, $54.4
million in the Finance segment, $2.4 million in the Leisure-time segment and a $1.2
million loss in Equity in earnings of affiliates. The decrease in expenses in the Finance
segment is primarily attributable to the $3.7 million translation gain, which was
recorded due to the devaluation of the Companys debt denominated in New Israeli
Shekel as compared to the U.S Dollar, as compared to $19.5 million translation loss in
2008, and was partially offset by the increase in interest expense related to the notes
payable which the Company received to finance the purchase of Gadot and issuance of the
Companys debentures. The chemical commodity pricing is a derivative of the crude
oil pricing. During 2008 the price of crude oil increased significantly and caused an
increase in the chemical commodity prices as well. Since September 2008, the crude oils
price decreased and led to a decrease in chemical commodity prices in 2009.

20

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Three months ended September 30,
2009 compared to three months ended September 30, 2008

The Company recorded a consolidated
net loss of $18.1 million for the three months ended September 30, 2009 compared to a net
loss of $12.6 million for the corresponding period in 2008. The loss in 2009 and 2008 is
primarily attributable to the translation loss and interest expenses resulting from the
issuance of the debentures and loans for the financing of Gadots purchase.

In the three months ended September
30, 2008 and 2009, the Company included the following certain data of Gadot (in millions
of dollars):

| |                                                   | September 30, 2009 | September 30, 2008
| | ------------------------------------------------- | ------------------ | ------------------
|
|
|
|
| | Chemical income                                   |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   
| | Chemical expense                                  |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   
| | Other expense (mainly general and administrative) |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   
| | Interest expense                                  |                    |                   
| |                                                   |                    |                   
| |                                                   |                    |                   

In the three months ended September
30, 2009, the Company recorded $1.5 million of marketing expense, as compared to a $2.1
million marketing expense in the corresponding period in 2008. These expenses are
attributable to Gadot and composed mainly of salary and commission expenses. The decrease
is primarily the result of a restructuring plan that took place in Gadot.

In the three months ended September
30, 2009, the Company recorded $8.5 million of general, administrative and other
expenses, as compared to $9.0 million in the corresponding period in 2008.

In the three months ended September
30, 2009, the Company recorded $4.0 million of noncontrolling interests share in loss of
subsidiaries, net, as compared to $3.3 million share in loss in the corresponding period
in 2008. These losses are mainly attributable to translation gains in the notes issued to
the partners in the Joint Venture, resulting from the valuation of the New Israeli Shekel
compared to the U.S. Dollar.

In the three months ended September
30, 2009, the Company recorded a $12.3 million interest expense, as compared to a $18.3
million interest expense for the corresponding period in 2008. This decrease is a result
of a lower increase in the Israeli Consumer Price Index (which the Companys
debentures are linked to) in the three months and September 30, 2009 as compared to the
increase in the Israeli Consumer Price Index in the three months ended September 30,
2008.

In the three months ended September
30, 2009, the Company recorded a $8.2 million translation loss, as compared to a $5.9
million translation gain for the corresponding period in 2008. The translation loss is
related to a change in the valuation of the New Israeli Shekel as compared to the U.S.
Dollar.

The Company recorded a $0.9 million
net loss in Equity in losses of affiliates for the three months ended September 30, 2009,
compared to a net loss of $1.8 million for the corresponding period in 2008.

21

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Results of operations analyzed by
segments for three months ended September 30:

|             | 2009 | 2008
|------------ | ---- | ----
|
|
|
|
|Revenues:    |      |     
|             |      |     
|Chemicals    |      |     
|Finance      |      |     
|Leisure-time |      |     
|             |      |     
|Total        |      |     
|             |      |     
|             |      |     

The Chemicals income relates solely
to Gadot and derives from the following activities: sales of a wide range of liquid
chemicals, providing maritime shipping services of chemicals by ships and providing other
services which include logistics and storage services for chemicals.

In the three months ended September
30, 2009, the Company recorded $102.9 million in revenue which was comprised of $101.1
million revenue in the Chemicals segment, $1.0 million gain in the Finance segment and
$0.8 million revenue in the Leisure-time segment, as compared to $145.7 million for the
same period in 2008, which was comprised of $142.6 million in the Chemicals segment, $2.3
million in the Finance segment and $0.8 million in the Leisure-time segment. The decrease
in Chemicals revenues is primarily attributable to the slowdown in the markets,
especially in Europe, which lead the decrease in sold quantities and product prices and
due to significant decrease in the demand for chemical carrier shipping. The third
quarter revenues slightly increased comparing to the first two quarters of 2009 but the
recession is still felt during the third quarter of 2009. The chemical shipping demand is
still slow and generates an uneven shipment of chemicals, which in certain voyages,
results in almost no cargo being shipped on the return leg of voyage.

The decrease in the Finance segment
revenue is primarily related to the revenues from the SWAP agreements.

|                               | 2009 | 2008
|------------------------------ | ---- | ----
|
|
|
|
|Expenses:                      |      |     
|                               |      |     
|Chemicals                      |      |     
|Finance                        |      |     
|Leisure-time                   |      |     
|                               |      |     
|                               |      |     
|Equity in losses of affiliates |      |     
|                               |      |     
|Total                          |      |     
|                               |      |     
|                               |      |     

In the three months ended September
30, 2009, the Company recorded $126.5 million in expenses which was comprised of $97.5
million of expenses in the Chemicals segment, $27.1 million of expenses in the Finance
segment, $1.0 million of expenses in the Leisure-time segment and a net loss of $0.9
million in Equity in losses of affiliates, as compared to $154.7 million in expenses for
the same period in 2008 which was comprised of $140.5 million in the Chemicals segment,
$11.6 million in the Finance segment, $0.9 million in the Leisure-time segment and a net
loss of $1.8 million in Equity in losses of affiliates. The chemical commodity pricing is
a derivative of the crude oil pricing. During 2008 the price of crude oil increased
significantly and caused an increase in the chemical commodity prices as well. Since
September 2008, the crude oils price decreased and led to a decrease in chemical
commodity prices in 2009.

Income
taxes

In the nine month period ended
September 30, 2009, the Company reported a tax benefit of $3.0 million as compared to
approximately $0.7 million of tax benefit in the corresponding period in 2008. The tax
benefit which was recorded pertains mainly to losses of the Company and affiliates for
which we created a deferred tax asset.

22

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Liquidity and Capital Resources

Cash
Flows

On September 30, 2009, cash, cash
equivalents and marketable securities were $110.1 million, as compared with $121.6
million at December 31, 2008. The decrease is mainly attributable to the repurchase of
the Companys debentures.

As of September 30, 2009, the
Company had $30.0 million of marketable securities as compared to $52.9 million as of
December 31, 2008. The decrease is attributable to the sale of marketable securities.

The Company may also receive cash
from operations and 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 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. 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, Ampals interest
in Gadot has been pledged and cash equivalents equal to $2.0 million has been allocated
as a compensating balance for various loans provided to the Company.

Cash
flows from operating activities

Net cash provided by operating
activities totaled approximately $19.1 million for the nine months ended September 30,
2009, compared to approximately $8.1 million used in operating activities for the
corresponding period in 2008. The increase in cash provided by operating activities is
primarily attributable to the increase in accounts payable and decrease in accounts
receivable and inventories as compared to the corresponding period in 2008.

Cash
flows from investing activities

Net cash used in investing
activities totaled approximately $7.9 million for the nine months ended September 30,
2009, compared to approximately $169.0 million used in investing activities for the
corresponding period in 2008. The change in cash used in investing activities is
primarily attributable to proceeds from the sale of available-for-sale securities in 2009
which were partially offset by increase in capital improvements in 2009, and deposits
granted, investments made in affiliates and available-for-sale shares in 2008.

Cash
flows from financing activities

Net cash used in financing
activities was approximately $7.6 million for the nine months ended September 30, 2009,
compared to approximately $228.4 million of net cash provided by financing activities for
the corresponding period in 2008. The change in cash used in financing activities is
primarily attributable to the repurchase of Companys debentures in 2009 and to the
issuance of the Companys Series B debentures in the amount of $ 166.9 million in
2008.

Investments

In the nine months ended September
30, 2009, the Company made additional investments in the amount of a $1.2 million loan to
Bay Heart Ltd. (Bay Heart).

Debt

Notes issued to institutional
investors in Israel, the convertible note issued to Merhav M.N.F Ltd. (Merhav)
and other loans payable pursuant to bank borrowings are either in U.S. Dollars, linked to
the Consumer Price Index in Israel or in unlinked New Israeli Shekels, with interest
rates varying depending upon their linkage provision and mature between 2009-2019.

The Company finances its general
operations and other financial commitments through bank loans from Bank Hapoalim, Union
Bank of Israel Ltd. (UBI) and Israel Discount Bank Ltd. (IDB). As
of September 30, 2009, the outstanding indebtedness under these bank loans totaled $368.8
million, and the loans mature through 2009-2019.

On April 29, 2008, Ampal completed a
public offering in Israel of NIS 577.8 million (approximately $166.8 million) aggregate
principal amount of its Series B debentures, due in 2016. The debentures are linked to
the Israeli consumer price index and carry an annual interest rate of 6.6%. The
debentures rank pari passu with Ampals unsecured indebtedness. The debentures will
be repaid in five equal annual installments commencing on January 31, 2012, and the
interest will be paid semi-annually. As of September 30, 2009, the outstanding debt under
the debentures amounts to $143.5 million, due to the change in valuation of the New
Israeli Shekel as compared to the U.S. dollar and to the repurchase plan. Ampal deposited
an amount of $44.6 million with Clal Finance Trusties 2007 Ltd. in accordance with a
trust agreement dated April 6, 2008, to secure the first four years worth of payments of
interest on the debentures. As of September 30, 2009, the outstanding amount of the
deposit was $25.5 million. The debt offering was made solely to certain non-U.S.
institutional investors in accordance with Regulation S under the U.S. Securities Act of
1933, as amended. The notes have not been and will not be registered under the U.S.
securities laws, or any state securities laws, and may not be offered or sold in the
United States or to United States persons without registration unless an exemption from
such registration is available.

23

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Ampal funded the Gadot transaction
with a combination of available cash and the proceeds of the credit facility, dated
November 29, 2007 (the Credit Facility), between Merhav Ampal Energy Ltd. (MAE)
and IDB, for approximately $60.7 million, which amount was increased, on the same terms
and conditions, on June 3, 2008 by approximately $11.3 million in order to fund the
second stage of the transaction and on September 23, 2008 by approximately $15.4 million
in order to fund the third stage of the transaction. The Credit Facility is divided into
two equal loans of approximately $43.7 million. The first loan is a revolving loan that
has no principal payments and may be repaid in full or in part on December 31 of each
year until 2019, when a single balloon payment will become due. The second loan also
matures in 2019, has no principal payments for the first one and a half years, and shall
thereafter be paid in equal installments over the remaining ten years of the term.
Interest on both loans accrues at a floating rate equal to LIBOR plus 2% and is payable
on a current basis. Ampal has guaranteed all the obligations of MAE under the Credit
Facility and Ampals interest in Gadot has also been pledged to IDB as a security
for the Credit Facility.  Yosef Maiman has agreed with IDB to maintain ownership of
a certain amount of the Companys Class A Common Stock. The Credit Facility contains
customary affirmative and negative covenants for credit facilities of this type.

As of September 30, 2009, the
Company has a $6.7 million loan with UBI that bears interest at the rate of LIBOR plus 2%
to be repaid in six annual installments commencing on April 2, 2008 and various other
loans with UBI in the aggregate amount of $5.8 million bearing interest at rates between
4.6% and 4.8% to be repaid during 2009.

As of September 30, 2009, the
Company has a $18.0 million loan with Bank Hapoalim as part of a $27 million dollar loan
facility. The funds borrowed under the loan facility are due in nine annual installments
commencing on December 31, 2007 and bear interest at an annual rate of LIBOR plus 2%. The
related loan agreement contains financial and other covenants including an acceleration
of payment upon the occurrence of certain changes in the ownership of the Companys
Class A Stock. As of September 30, 2009, the Company is in compliance with its debt
covenants.

As of September 30, 2009, the
Company has a $97.5 million loan from institutional investors who own 50% of Merhav Ampal
Energy Holdings, LP. The loan is not linked to the Consumer Price Index in Israel, bears
no interest and is repayable upon agreement by both parties.

The Company has a short term loan
from Bank Hapoalim in the aggregate amount of $3.5 million bearing interest at an annual
rate of LIBOR plus 2.6%, to be repaid by December 31, 2009 and a revolving short term
loan in the amount of $3.0 million bearing interest of 3.8%.

On November 20, 2006, the Company
entered into a trust agreement with Hermetic Trust (1975) Ltd. pursuant to which the
Company issued Series A debentures to institutional investors in Israel in the principal
aggregate amount of NIS 250 million (approximately $58 million) with an interest rate of
5.75%, which is linked to the Israeli consumer price index. The notes shall rank pari
passu with our unsecured indebtedness. The notes will be repaid in five equal annual
installments commencing on November 20, 2011, and the interest will be paid
semi-annually. As of September 30, 2009, the outstanding debt under the notes amounts to
$67.9 million, due to the change in valuation of the New Israeli Shekel as compared to
the U.S. dollar. The Company deposited an amount of $10.2 million with Hermetic Trust
(1975) Ltd. to secure the first three years worth of payments of interest on the
debentures. As of September 30, 2009, the outstanding amount of the deposit was $2.0
million.

Midroog Ltd. (an affiliate of
Moodys  Investors  Service)  currently  rates  Ampals  Series A and Series B
       Debentures as A3 on its Watchlist.

Other long term borrowings in the
amount of $0.1 million are linked to the Consumer Price Index in Israel, mature between
2009 and 2010 and bear annual interest of 5.7%.

As of September 30, 2009, Gadot had
$0.1 million outstanding under its convertible debentures. Gadots debentures were
listed on the TASE in December 2003, are linked to the Consumer Price Index in Israel,
bear annual interest at the rate of 6.5%, and are repayable at December 5, 2009. The
debentures are convertible into ordinary shares of Gadot, each incremental amount of NIS 3.53
of outstanding debentures (linked to the Consumer Price Index in Israel) convertible into
one ordinary share of Gadot, par value NIS 0.1, subject to adjustments.

As of September 30, 2009, Gadot had
$4.4 million outstanding under its other debentures. These debentures are not convertible
into shares and are repayable in five equal annual installments on September 15 of
each of the years 2008 through 2012. The outstanding balance of the principal of the
debentures bears annual interest at the rate of 5.3%. The principal and interest of the
debentures are linked to the Consumer Price Index in Israel and the interest is payable
in semi-annual installments on March 15 and September 15 of each of the years
2006 through 2012.

24

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As of September 30, 2009, Gadot had
short term loans payable in the amount of $63 million and long term loans payable in the
amount of $78.2 million. The various short term loans payable are either unlinked or
linked to the USD and bear interest at rates between 2.5% to 4.5%. The various long term
loans payable are either unlinked or linked to the Consumer Price Index in Israel or
linked to the USD and bear interest at rates between 2.0% to 9.0%.

The weighted average interest rates
and the balances of these short-term borrowings at September 30, 2009 and December 31,
2008 were 2.9% on $152.0 million and 5.1% on $157.2 million, respectively.

As of September 30, 2009, the
Company had issued guarantees on certain outstanding loans to its investees and
subsidiaries in the aggregate principal amount of $35.9 million. These include:

|1. | A
$8.6 million guarantee on indebtedness incurred by Bay Heart in connection           with
the development of property. Bay Heart recorded losses in 2009. 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.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | A
$27.3 million guarantee of outstanding indebtedness of Gadot.
|-- | ---------------------------------------------------------------

Off-Balance Sheet Arrangements

Other than the foreign currency
contracts specified below, the Company has no off-balance sheet arrangements.

FOREIGN CURRENCY CONTRACTS

The Companys derivative
financial instruments consist of foreign currency forward exchange contracts to purchase
or sell U.S. dollars. These contracts are utilized by the Company, 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 September 30, 2009, the
Company had open foreign currency forward exchange contracts to purchase U.S. Dollars and
sell Euros in the amount of $4.9 million and contracts to purchase U.S. Dollars and sell
New Israeli Shekels in the amount of $8.0 million.

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 and 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 outcomes may vary from those described herein as anticipated, believed,
estimated, expected, intended or planned. These risks and uncertainties may include, but
are not limited to, those described in this report, in Part II, Item 1A. Risk Factors and
elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2008, and
those described from time to time in our future reports filed with the Securities and
Exchange Commission. The Company assumes no obligation to update or revise any
forward-looking statements.

25

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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 exchange rates, index
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 September 30, 2009, and are sensitive to the above market risks.

During the nine months ended
September 30, 2009, 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, 2008.

Interest Rate Risks

On May 15, 2008, the Company entered
into a swap agreement with respect to its Series B debentures, in the principal amount of
$134.3 million, due 2016. As a result of this agreement the Company is currently paying an
effective interest rate of LIBOR plus 5.12% on $43.9 million of these debentures, as
compared to the original 6.6% fixed rate which is linked to the Israeli consumer price
index.

On April 1, 2009, the Company entered
into a interest rate swap agreement with respect to its loan to finance the purchase of
Gadot in the principal amount of $43.7 million, due 2019. As a result of this agreement
the Company is currently paying a fixed interest rate of 2.95% as compared to LIBOR in the
original loan agreement.

As of September 30, 2009, the value
of the currency swaps contracts resulted in a $2.1 million in other assets and a
$5.5 million in interest and translation expenses.

As of September 30, 2009, the Company
had financial assets totaling $107.6 million and financial liabilities totaling $603.0
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.

As of September 30, 2009, the Company
did not have fixed rate financial assets and had variable rate financial assets of $107.6
million. A ten percent decrease in interest rates would not increase the unrealized fair
value of the fixed rate assets.

As of September 30, 2009, the Company
had fixed rate debt of $328.5 million and variable rate debt of $274.5 million. A ten
percent decrease in interest rates would increase the unrealized fair value of the
financial debts in the form of the fixed rate debt by approximately $5.0 million.

The net decrease in earnings and cash
flows for the next year resulting from a ten percent interest rate increase would be
approximately $0.9 million, holding other variables constant.

Foreign Currency Exchange
Rate Sensitivity Analysis

The Companys exchange rate
exposure on its financial instruments results from its investments and ongoing operations.
As of September 30, 2009, the Company had open foreign currency forward exchange contracts
to purchase U.S. Dollars and sell Euros in the amount of $4.9 million and contracts to
purchase U.S. Dollars and sell New Israeli Shekel in the amount of $8.0 million. Holding
other variables constant, if there were a ten percent devaluation of each of the foreign
currencies, the Companys cumulative translation loss reflected in the Companys
accumulated other comprehensive loss would increase by $3.3 million, and regarding the
statements of operations, a ten percent increase in the U.S. Dollar exchange rate would
result in a net increase in losses and cash flows of $22.9 million, and a ten percent
increase in the Euro exchange rate would result in a net increase in losses and cash flows
of $0.2 million.

On May 15, 2008, the Company entered
into a swap agreement with respect to its Series B debentures, in the principal amount of
$134.3 million, due 2016. As a result of these agreements the Company is currently paying
an effective interest rate of LIBOR plus 5.12% on $43.9 million of these notes, as
compared to the original 6.6% fixed rate which is linked to the Israeli consumer price
index. As of September 30, 2009, the value of the currency swap resulted in a $1.5 million
in other assets and a $4.9 million in translation expense.

On April 1, 2009, the Company entered
into a interest rate swap agreement with respect to its loan to finance the purchase of
Gadot in the principal amount of $43.7 million, due 2019. As a result of this agreement
the Company is currently paying a fixed interest rate of 2.95% as compared to a LIBOR in
the original loan agreement. As of September 30, 2009, the value of the currency swap
resulted in a $0.6 million in other assets and a corresponding increase in interest
expense.

26

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Equity Price Risk

The Companys investments at
September 30, 2009 included trading marketable securities which are recorded at a fair
value of $2.2 million, including a net unrealized loss of $0.2 million, and $27.8 million
of trading securities that are classified as available for sale, including a net
unrealized loss of $0.9 million. Those securities have exposure to equity price risk. The
estimated potential loss in fair value resulting from a hypothetical ten percent decrease
in prices quoted on stock exchanges is approximately $3.0 million. There would be no
impact on cash flow resulting from a hypothetical ten percent decrease in prices quoted on
stock exchanges.

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.

27

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

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

| | None.
| | -----

|Item 1A. | RISK FACTORS
|-------- | ------------

| | In
addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report
on Form 10-K for the year ended December 31, 2008, which could materially affect our
business, financial condition or future results. The risks described in our Annual Report
on Form 10-K are not the only risks facing our Company. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition and/or operating
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 Earnings Per Share of Class A Stock.
|---- | --------------------------------------------------------------------------

|31.1 | Certification
of Yosef A. Maiman 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 Yosef A. Maiman and Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

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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/ Yosef A. Maiman
Yosef A. MaimanChairman of the BoardPresident & Chief Executive Officer(Principal Executive Officer)
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | By: /s/ Zahi Ben-Atav
Zahi Ben-AtavVP Accounting and Controller(Principal Accounting Officer)
| |  | -----------------------------------------------------------------------------------------------------------

Date: November 9, 2009

29

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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 Yosef A. Maiman 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 Yosef A. Maiman and Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

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