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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 June 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
|---------------------------------

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|(Exact Name of Registrant as Specified in Its Charter)
|------------------------------------------------------

|         |           
|-------- | ----------
|
|
|
|
|New York | 13-0435685

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|                                |                      
|------------------------------- | ---------------------
|
|
|
|
|(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 July 27, 2009).



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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES

Index to Form 10-Q

|         |         |                                                                                       | Page 
|-------- | ------- | ------------------------------------------------------------------------------------- | -----
|
|
|
|
|Part I   |         | Financial Information                                                                 |      
|         | Item 1. | Financial Statements (unaudited)                                                     
|         |         | Consolidated Balance Sheets                                                           | 1-2  
|         |         | Consolidated Statements of Operations                                                 | 3-4  
|         |         | Consolidated Statements 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 | 16-25
|         | 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 SHEETS

|ASSETS AS OF                                                                 | June 30,
2009 | December 31,
2008
|---------------------------------------------------------------------------- | ------------- | -----------------
|
|
|
|
|Current assets:                                                              |               |                  
|Cash and cash equivalents                                                    |               |                  
|Marketable securities                                                        |               |                  
|Accounts receivable (Net of allowance for doubtful amounts of $0.1 and $0.3) |               |                  
|Deposits                                                                     |               |                  
|Inventories                                                                  |               |                  
|Other assets                                                                 |               |                  
|                                                                             |               |                  
|Total current assets                                                         |               |                  
|                                                                             |               |                  
|Non-current assets:                                                          |               |                  
|Investments                                                                  |               |                  
|Fixed assets, less accumulated depreciation of $16,598 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

---

---

AMPAL-AMERICAN ISRAEL
CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS

|LIABILITIES AND EQUITY AS OF                                                                 | June 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

---

---

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

|SIX MONTHS ENDED JUNE 30,                                                            | 2009 | 2008
|------------------------------------------------------------------------------------ | ---- | ----
|
|
|
|
|REVENUES:                                                                            |      |     
|Chemical income                                                                      |      |     
|Real estate income                                                                   |      |     
|Equity in earnings (losses) of affiliates                                            |      |     
|Realized gains on investments                                                        |      |     
|Realized and unrealized gains (losses) on marketable securities                      |      |     
|Translation gain                                                                     |      |     
|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                                                |      |     
|Real estate expenses                                                                 |      |     
|Interest expense                                                                     |      |     
|Translation loss                                                                     |      |     
|Loss from sale of fixed assets                                                       |      |     
|Marketing expense                                                                    |      |     
|General, administrative and other                                                    |      |     
|                                                                                     |      |     
|Total expenses                                                                       |      |     
|                                                                                     |      |     
|Gain (loss) before income taxes                                                      |      |     
|Provision for income taxes (tax benefits)                                            |      |     
|                                                                                     |      |     
|Net income (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.

3

---

---

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

|THREE MONTHS ENDED JUNE 30,                                                          | 2009 | 2008
|------------------------------------------------------------------------------------ | ---- | ----
|
|
|
|
|REVENUES:                                                                            |      |     
|Chemical income                                                                      |      |     
|Real estate income                                                                   |      |     
|Equity in earnings (losses) of affiliates                                            |      |     
|Realized gains on investments                                                        |      |     
|Realized and unrealized gains (losses) on marketable securities                      |      |     
|Translation gain                                                                     |      |     
|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                                                |      |     
|Real estate expenses                                                                 |      |     
|Interest expense                                                                     |      |     
|Translation loss                                                                     |      |     
|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 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

---

---

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

|SIX MONTHS ENDED JUNE 30,                                             | 2009 | 2008
|--------------------------------------------------------------------- | ---- | ----
|
|
|
|
|Cash flows from operating activities:                                 |      |     
|Net income (loss) for the period                                      |      |     
|Adjustments to reconcile net (income) loss for the period to net cash |      |     
|provided by (used in) operating activities:                           |      |     
|Equity in losses (earnings) of affiliates                             |      |     
|Realized and unrealized loss (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 (decrease) 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

---

---

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

|SIX MONTHS ENDED JUNE 30,                                             | 2009 | 2008
|--------------------------------------------------------------------- | ---- | ----
|
|
|
|
|Cash flows from financing activities:                                 |      |     
|Notes and loans payable received                                      |      |     
|Notes and loans payable repaid                                        |      |     
|Proceeds from issuance of debentures                                  |      |     
|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                            |      |     
|                                                                      |      |     
|                                                                      |      |     
|Supplement 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

---

---

AMPAL-AMERICAN ISRAEL
CORPORATION AND SUBSIDIARIESCONDENSED 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 income 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 JUNE 30, 2009    |                                   |  | 
|                            |                                   |  | 

*In thousands

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

7

---

---

AMPAL-AMERICAN ISRAEL
CORPORATION AND SUBSIDIARIESCONDENSED 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 JUNE 30, 2008    |                                   |  | 
|                            |                                   |  | 

*In thousands

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

8

---

---

AMPAL-AMERICAN ISRAEL
CORPORATION AND SUBSIDIARIES NOTES 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
|-- | --------------------------------------------------------------

| | FAS
168
| | -------

| | In
June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168,
The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principlesa replacement of FASB Statement No. 162 (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, becomes effective for
interim and annual periods ending on or after September 15, 2009. We will apply the
Codification beginning in the third quarter of fiscal 2009. The adoption of SFAS 168 is
not expected to have a material impact on our condensed consolidated financial statements
or related footnotes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
167
| | -------

| | In
June 2009, the FASB issued FAS 167, Amendments to FASB Interpretation No. 46(R),
which changes the approach to determining the primary beneficiary of a variable interest
entity (VIE) and requires companies to more frequently assess whether they
must consolidate VIEs. This new standard is effective for us beginning on January 1,
2010. We are currently assessing the potential impacts, if any, on our consolidated
financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
157-4
| | ---------

| | In
April 2009, the FASB issued FASB Staff Position No. 157-4, Determining
Whether a Market is not Active and a Transaction is not Distressed (FSP FAS
157-4), which provides additional guidance in accordance with FASB No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or liability
has significantly decreased. FSP FAS 157-4 shall be 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
107-1
| | ---------

| | In
April 2009, the FASB issued FASB Staff Position No. 107-1 (FSP FAS 107-1)
and APB 28-1 (APB 28-1), which amends FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments and APB Opinion No. 28,
Interim Financial Reporting, to require disclosures about the fair value of financial
instruments for interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for
interim reporting periods ending after June 15, 2009 and the adoption did not have a
material impact on our financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

---

| | EITF
03-6-1
| | -----------

| | In
June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are Participating
Securities (FSP EITF 03-6-1). The FASB decided that unvested
share-based payout awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included
in the computation of EPS pursuant to the two-class method under SFAS 128, Earnings per
Share. FSP EITF 03-6-1 became effective for the Company on January 1, 2009 and the
adoption did not have an impact on our financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 157  Fair Value Measurements
| | --------------------------------------

| | In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS
157), which provides guidance on how to measure assets and liabilities that use
fair value. SFAS 157 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. SFAS 157 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 SFAS 157 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 SFAS 157 that became effective in 2008 did not have a material impact on the
Companys financial statements. The adoption of the remaining parts of SFAS 157 did
not have a material impact on our financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 141R  Business Combinations
| | -------------------------------------

| | In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R) which replaces SFAS No. 141, Business
Combination. SFAS 141R 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. SFAS 141R 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 SFAS 141R had
no material impact on the financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 160  Noncontrolling Interests in Consolidated Financial Statements
| | ----------------------------------------------------------------------------

| | In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statementsan amendment of ARB No. 51" (SFAS
160). SFAS 160 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 SFAS 160 were applied retrospectively. Other than the change
in presentation of noncontrolling interests, the adoption of SFAS 160 had no material
impact on the financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 161  Disclosures about Derivative Instruments and Hedging Activities
| | ------------------------------------------------------------------------------

| | In
March 2008, FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133(FAS
161). FAS 161 amends and expands the disclosure requirements of FAS 133 to clarify
how and why companies use derivative instruments. In addition, FAS 161 requires more
disclosures regarding how companies account for derivative instruments and the impact
derivatives have on a companys financial statements. Other than the required
disclosures (see note 10), the adoption of SFAS 161 had no material impact on the
financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 142-3  Determination of the Useful Life of Intangible Assets
| | ----------------------------------------------------------------------

| | In
April 2008, the FASB issued FASB Staff Position FAS No. 142-3 (FSP FAS
142-3), 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 under FAS No. 142, Goodwill and Other
Intangible Assets. FSP FAS 143-2 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 FAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under FAS No. 141, Business
Combinations. The adoption of FSP FAS 142-3 had no impact on material the 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
equal to $2.0 million has been placed 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. 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 was signed with
Dorad Energy, Ltd. (Dorad) (an independent power producer) for a quantity of
0.735 BCM annually over 17-22 years. 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2008, Midroog downgraded the rating on Ampals Series A and Series B
Debentures from A2 to A3 and will continue to maintain Ampal on its Watchlist.Midroog
concluded that there is a possibility that new agreements between EMG and the Egyptian
gas supplier may adversely affect EMGs financial results compared to previous
expectations, which will result in reduced cash flow from EMG to Ampal and other
financial parameters resulting from such reduced cash flow. Midroog added that it will
monitor the situation, including the negotiations between EMG and the Egyptian gas
supplier, the regularity of the gas supply and other matters, and will review Ampals
rating accordingly. Ampals rating will remain on the Watchlist.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of June 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 negations 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 negotiations are underway.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, MAE. 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 ($2.6 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 FAS 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS 161 is an amendment of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). This statement
requires enhanced disclosures about an entitys derivative and hedging activities
and thereby improves the transparency of financial reporting. FAS 161 became effective
for the Company on January 1, 2009 and we have incorporated the additional
disclosure information for FAS 161 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 variability 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, contracts to purchase Yen 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 SFAS 133. 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 are shown by those in an asset or
liability position and categorized as commodity derivatives.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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     |  |                            

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

| | In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS
157), 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 SFAS 157 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 SFAS 157 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
157 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 SFAS 157 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 SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 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. SFAS 159 is effective for fiscal years after November 15, 2007. The Company
did not elect to apply the fair value option available under SFAS 159 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

---

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

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

| |                                 | June 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, marketable securities that are
classified in level 2 consist of trading securities for which there are quoted prices in
active brokers markets. The fair value of derivative assets 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
| | --------------

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

| | 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

---

---

| | SIX MONTHS ENDED JUNE 30,             | 2009 | 2008
| | ------------------------------------- | ---- | ----
|
|
|
|
| | Revenues:                             |      |     
| | Chemicals                             |      |     
| | Finance                               |      |     
| | Leisure-time                          |      |     
| |                                       |      |     
| |                                       |      |     
| | Equity in (losses) gain of affiliates |      |     
| |                                       |      |     
| | Total consolidated revenues           |      |     
| |                                       |      |     
| |                                       |      |     
| | Pre-tax Operating Gain (loss):        |      |     
| | Chemicals                             |      |     
| | Finance                               |      |     
| | Leisure-time                          |      |     
| |                                       |      |     
| |                                       |      |     
| | Equity in (losses) gain of affiliates |      |     
| |                                       |      |     
| | Total consolidated pretax gain (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 June 30, 2009 and 2008 because such shares are anti-dilutive.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (Shares in thousands)                    | Three Months ended
June 30,
| | ---------------------------------------- | ---------------------------
|
|
|
|
| | Shares resulting from Options and Rights |                            
| |                                          |                            

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

| | None.
| | -----

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.

16

---

---

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 (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 for 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 tenants and
country-club subscribers are recognized ratably over the contractual period or as
services are performed. Revenue from amortization of tenant deposits (included in
discontuinued operation) was calculated at a fixed periodic rate based on the specific
terms in the occupancy agreement signed with the tenants.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Recently adopted and recently
Issued Accounting Pronouncements

| | FAS
168
| | -------

| | In
June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168,
The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principlesa replacement of FASB Statement No. 162 (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, becomes effective for
interim and annual periods ending on or after September 15, 2009. We will apply the
Codification beginning in the third quarter of fiscal 2009. The adoption of SFAS 168 is
not expected to have a material impact on our condensed consolidated financial statements
or related footnotes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
167
| | -------

| | In
June 2009, the FASB issued FAS 167, Amendments to FASB Interpretation No. 46(R),
which changes the approach to determining the primary beneficiary of a variable interest
entity (VIE) and requires companies to more frequently assess whether they
must consolidate VIEs. This new standard is effective for us beginning on January 1,
2010. We are currently assessing the potential impacts, if any, on our consolidated
financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
157-4
| | ---------

| | In
April 2009, the FASB issued FASB Staff Position No. 157-4, Determining
Whether a Market is not Active and a Transaction is not Distressed (FSP FAS
157-4), which provides additional guidance in accordance with FASB No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or liability
has significantly decreased. FSP FAS 157-4 shall be 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

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| | FAS
107-1
| | ---------

| | In
April 2009, the FASB issued FASB Staff Position No. 107-1 (FSP FAS 107-1)
and APB 28-1 (APB 28-1), which amends FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments and APB Opinion No. 28,
Interim Financial Reporting, to require disclosures about the fair value of financial
instruments for interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for
interim reporting periods ending after June 15, 2009 and the adoption did not have a
material impact on our financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | EITF
03-6-1
| | -----------

| | In
June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are Participating
Securities (FSP EITF 03-6-1). The FASB decided that unvested
share-based payout awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included
in the computation of EPS pursuant to the two-class method under SFAS 128, Earnings per
Share. FSP EITF 03-6-1 became effective for the Company on January 1, 2009 and the
adoption did not have an impact on our financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 157 Fair Value Measurements
| | -------------------------------------

| | In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS
157), which provides guidance on how to measure assets and liabilities that use
fair value. SFAS 157 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. SFAS 157 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 SFAS 157 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 SFAS 157 that became effective in 2008 did not have a material impact on the
Companys financial statements. The adoption of the remaining parts of SFAS 157 did
not have a material impact on our financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 141R Business Combinations
| | ------------------------------------

| | In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R) which replaces SFAS No. 141, Business
Combination. SFAS 141R 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. SFAS 141R 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 SFAS 141R had
no material impact on the financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 160 Noncontrolling Interests in Consolidated Financial Statements
| | ---------------------------------------------------------------------------

| | In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statementsan amendment of ARB No. 51" (SFAS
160). SFAS 160 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 SFAS 160 were applied retrospectively. Other than the change
in presentation of noncontrolling interests, the adoption of SFAS 160 had no material
impact on the financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 161Disclosures about Derivative Instruments and Hedging Activities
| | ----------------------------------------------------------------------------

| | In
March 2008, FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133(FAS
161). FAS 161 amends and expands the disclosure requirements of FAS 133 to clarify
how and why companies use derivative instruments. In addition, FAS 161 requires more
disclosures regarding how companies account for derivative instruments and the impact
derivatives have on a companys financial statements. Other than the required
disclosures (see note 10), the adoption of SFAS 161 had no material impact on the
financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

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| | SFAS
No. 142-3  Determination of the Useful Life of Intangible Assets
| | ----------------------------------------------------------------------

| | In
April 2008, the FASB issued FASB Staff Position FAS No. 142-3 (FSP FAS
142-3), 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 under FAS No. 142, Goodwill and Other
Intangible Assets. FSP FAS 143-2 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 FAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under FAS No. 141, Business
Combinations. The adoption of FSP FAS 142-3 had no impact on material the 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 few months, both the prices and demand for chemicals decreased
dramatically due to the global recession. The economic indicators from the United States
and Europe reveal the intensity of the recession and it is unclear when the market
sentiment will change. The economic slowdown is felt in all sectors of the economy.

Six months ended June 30, 2009
compared to six months ended June 30, 2008

The Company recorded a consolidated
net loss of $0.9 million for the six months ended June 30, 2009 compared to a net loss of
$27.6 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 is primarily attributable to interest expenses and
translation loss in 2008.

In the six months ended June 30,
2009 and 2008, the Company included the results of operations of Gadot. Below is data
from Gadot results of operations (in millions of dollars):

| |                             | June 30, 2009 | June 30, 2008
| | --------------------------- | ------------- | -------------
|
|
|
|
| | Chemical income             |               |              
| |                             |               |              
| | Chemical expense            |               |              
| |                             |               |              
| | Marketing expense           |               |              
| |                             |               |              
| | Other expense (mainly       |               |              
| | general and administrative) |               |              
| |                             |               |              
| | Interest expense            |               |              
| |                             |               |              
| | Net gain                    |               |              
| |                             |               |              

In the six months ended June 30,
2009, the Company recorded $3.4 million of marketing  expense,  as        compared to a
$6.1 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        due to the result of a restructuring plan that took place at
Gadot during the second half of 2008.

In the six  months  ended  June  30,
 2009,  the  Company  recorded  a $16.1  million  of  general,        administrative  and
other  expense,  as compared to $18.3  million in the  corresponding  period in
       2008.  The  decrease is due to the result of a  restructuring  plan that took
place at Gadot during        the second half of 2008.

In the six months  ended June 30,
 2009,  the  Company  recorded a $3.2  million of  noncontrolling        interests  share
in gain of  subsidiaries,  net, as compared to $12.9  million share in loss in the
       corresponding  period in 2008.  These gains are mainly  attributable  to
 translation  gains 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 six months ended June 30,
2009, the Company  recorded a $13.4 million interest  expense,  as        compared to a
$14.9 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 and the interest expense
of the SWAP agreements.

19

---

---

In the six months ended June 30,
2009, the Company  recorded a $12.0 million  translation  gain, as        compared to a
$25.4 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,  an  increase  of 3.1% in the six months
 ended June 30,  2009,  as compared to a        decrease of 12.7% for the corresponding
period in 2008.

The  Company  recorded  a net loss
of $0.3  million in Equity in losses of  affiliates  for the six        months  ended
June 30,  2009,  compared to a net gain in Equity in earnings of  affiliates  of $0.6
       million for the corresponding period in 2008.

Results of operations analyzed by
segments for six months ended June 30:

|                                          | 2009 | 2008
|----------------------------------------- | ---- | ----
|
|
|
|
|Revenues:                                 |      |     
|                                          |      |     
|Chemicals                                 |      |     
|Finance                                   |      |     
|Leisure-time                              |      |     
|                                          |      |     
|                                          |      |     
|Equity in earnings (losses) of affiliates |      |     
|                                          |      |     
|                                          |      |     
|Total                                     |      |     
|                                          |      |     
|                                          |      |     

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 six months ended June 30,
2009, the Company recorded $205.7 million in revenue which was comprised of $186.3
million in the Chemicals segment, $18.4 million in the Finance segment, $1.3 million in
the Leisure-time segment and a net loss of $0.3 million in Equity in losses of
affiliates, as compared to $282.6 million for the same period in 2008, which was
comprised of $277.5 million in the Chemicals segment, $3.1 million in the Finance
segment, $1.5 million in the Leisure-time segment and a $0.6 million gain in Equity in
earnings of affiliates. 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. This was partially offset by the change in the valuation of
the New Israeli Shekel as compared to the Euro. The recession and the resulting
significant decrease in the demand for chemical carrier ships were felt during the first
half 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.

The increase in the Finance segment
revenue is primarily related to the $12.0 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 $25.4 million translation loss in 2008.

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

In the six months ended June 30,
2009, the Company recorded $205.0 million in expenses which was comprised of $188.0
million of expenses in the Chemicals segment, $15.9 million of expenses in the Finance
segment and $1.0 million of expenses in the Leisure-time segment, as compared to $324.3
million in expenses for the same period in 2008 which was comprised of $279.9 million in
the Chemicals segment, $42.9 million in the Finance segment and $1.5 million in the
Leisure-time segment. The decrease in expenses in the Finance segment is primarily
attributable to the $12.0 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 $25.4 million translation loss in 2008, and was partially
offset by to 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.

20

---

---

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

The Company recorded a consolidated
net loss of $13.4 million for the three months ended June 30, 2009 compared to a net loss
of $17.4 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 June 30,
2008 and 2009, the Company included the results of operations of Gadot. Below is data
from Gadot results of operations (in millions of dollars):

| |                             | June 30, 2009 | June 30, 2008
| | --------------------------- | ------------- | -------------
|
|
|
|
| | Chemical income             |               |              
| |                             |               |              
| | Chemical expense            |               |              
| |                             |               |              
| | Marketing expense           |               |              
| |                             |               |              
| | Other expense (mainly       |               |              
| | general and administrative) |               |              
| |                             |               |              
| | Interest expense            |               |              
| |                             |               |              
| | Net gain                    |               |              
| |                             |               |              

In the three months ended June 30,
2009,  the Company  recorded $1.7 million of marketing  expense,        as  compared  to
a $3.0  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 due to the result of a  restructuring
 plan that took place in Gadot  during the second        half of 2008.

In the three  months  ended  June
30,  2009,  the  Company  recorded  a $8.6  million  of  general,        administrative
 and other  expense,  as compared to $10.6  million in the  corresponding  period in
       2008.  The  decrease is due to the result of a  restructuring  plan that took
place in Gadot during        the second half of 2008.

In the three  months  ended June 30,
2009,  the Company  recorded a $5.8 million of  noncontrolling        interests  share in
loss of  subsidiaries,  net, as compared to $4.9  million  share in loss in the
       corresponding  period in 2008. These loss 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 June 30,
2009, the Company recorded a $6.1 million interest  expense,  as        compared to a
$10.5 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 June
30, 2009 as compared to the increase in the        Israeli Consumer Price Index in the
three months ended June 30, 2008.

In the three months ended June 30,
2009, the Company recorded a $14.6 million  translation loss, as        compared to a
$12.2 million translation loss 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 $0.2
 million  net loss in Equity in losses of  affiliates  for the three        months ended
June 30, 2009,  compared to a minor net loss in Equity in losses of affiliates for the
       corresponding period in 2008.

21

---

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

|                                          | 2009 | 2008
|----------------------------------------- | ---- | ----
|
|
|
|
|Revenues:                                 |      |     
|                                          |      |     
|Chemicals                                 |      |     
|Finance                                   |      |     
|Leisure-time                              |      |     
|                                          |      |     
|                                          |      |     
|Equity in earnings (losses) of affiliates |      |     
|                                          |      |     
|                                          |      |     
|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 June 30,
2009, the Company recorded $95.1 million in revenue which was comprised of $91.6 million
in the Chemicals segment, $3.1 million in the Finance segment, $0.6 million in the
Leisure-time segment and a net loss of $0.2 million in Equity in losses of affiliates, as
compared to $153.9 million for the same period in 2008, which was comprised of $151.4
million in the Chemicals segment, $1.7 million in the Finance segment, $0.8 million in
the Leisure-time segment and a minor net loss in Equity in losses of affiliates. 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 recession
and the resulting significant decrease in the demand for chemical carrier ships were felt
during the second quarter 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. The increase in the Finance segment revenue
is primarily related to the increase in interest income from deposits and loans
receivable.

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

In the three months ended June 30,
2009, the Company recorded $116.3 million in expenses which was comprised of $93.1
million of expenses in the Chemicals segment, $22.7 million of expenses in the Finance
segment and $0.5 million of expenses in the Leisure-time segment, as compared to $176.5
million in expenses for the same period in 2008 which was comprised of $151.5 million in
the Chemicals segment, $24.0 million in the Finance segment and $0.9 million in the
Leisure-time segment.

Income
taxes

In the six month periods ended June
31, 2009 the Company reported tax benefit of $0.3 million as compared to approximately
$1.0 million of tax benefit in the corresponding periods in 2008. The Companys loss
for the period includes $13.5 million from translation gains (these gains represent
temporary differences for tax purposes). We created a deferred tax asset and full
valuation allowance for such gains. The tax benefit which was recorded pertains to Gadots
income.

22

---

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Liquidity and Capital Resources

Cash
Flows

On June 30, 2009, cash, cash
equivalents and marketable securities were $109.1 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 June 30, 2009, the Company had
$31.3 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 equal to $2.0 million has been placed as a
compensating balance for various loans provided to the Company.

Cash
flows from operating activities

Net cash provided by operating
activities totaled approximately $18.2 million for the six months ended June 30, 2009,
compared to approximately $4.3 million used in operating activities for the corresponding
period in 2008. The increase in cash provided by operating activities is primarily
attributable to the decrease in accounts receivable and inventories. This was partially
offset by a decrease in accounts payable and proceeds from trading securities.

Cash
flows from investing activities

Net cash used in investing
activities totaled approximately $1.3 million for the six months ended June 30, 2009,
compared to approximately $92.8 million used in investing activities for the
corresponding period in 2008. The change in cash used in investing activities is
primarily attributable to deposits granted, investments made in affiliates in 2008 and
proceeds from the sale of available for sale securities in 2009 which were partially
offset by increase in capital improvements in 2009.

Cash
flows from financing activities

Net cash used in financing
activities was approximately $11.7 million for the six months ended June 30, 2009,
compared to approximately $187.5 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 loans repaid, the repurchase of Companys Series B
debentures, and the issuance in 2008 of the Companys Series B debentures in the
amount of $ 166.9 million.

Investments

In the six months ended June 30,
2009, the Company made additional investments in the form of a $0.6 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 June 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 June 30, 2009, the outstanding debt under the
debentures amounts to $134.3 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 June 30, 2009, the outstanding amount of the deposit
was $29.4 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

---

---

On March 27, 2008, Midroog Ltd., an
affiliate of Moodys Investors Service rated the Series B debentures as A2 and also
raised the rating of Ampals Series A debentures to A2. On September 15, 2008,
Midroog reduced the rating on the Series A and Series B debentures to A3.

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 a percentage spread
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 June 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 $5.4 million bearing interest at rates between 4.6%
and 4.8% to be repaid during 2009.

As of June 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 June 30, 2009, the Company is in compliance with its debt covenants.

As of June 30, 2009, the Company has
a $93.5 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 $2.9 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 June 30, 2009, the outstanding debt under the notes amounts to $63.6
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
June 30, 2009, the outstanding amount of the deposit was $1.9 million.

Midroog initially rated the Companys
Series A debentures as A3. On March 27, 2008 Midroog raised the rating of the Series A
debentures to A2 and rated the Series B debentures as A2. On September 15, 2008 Midroog
reduced the rating to A3.

Other long term borrowings in the
amount of $0.2 million are linked to the Consumer Price Index in Israel, mature between
2009 and 2010 and bear annual interest of 5.7%.

As of June 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) is convertible
into one ordinary share of Gadot, par value NIS 0.1, subject to adjustments.

As of June 30, 2009, Gadot had $8.8
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.

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As of June 30 2009, Gadot has short
term loans payable (including current maturities of long term loans in amount of $9.6
million) in the amount of $74.1 million and long term loans payable (excluding current
maturities of long term loans) in the amount of $83.6 million. The various short term
loans payable are either unlinked or linked to the Euro and bear interest at rates
between 2.2 % to 5 %. The various long term loans payable are either unlinked or linked
to the Consumer Price Index in Israel or linked to the Euro and bear interest at rates
between 2 % to 9 %.

The weighted average interest rates
and the balances of these short-term borrowings at June 30, 2009 and December 31, 2008
were 2.9% on $141.9 million and 5.1% on $157.2 million, respectively.

As of June 30, 2009, the Company had
issued guarantees on certain outstanding loans to its investees and subsidiaries in the
aggregate principal amount of $34.9 million. These include:

|1. | A
$8.0 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
$26.9 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 June 30, 2009, the Company had
open foreign currency forward exchange contracts to purchase U.S. Dollars and sell Euros
in the amount of $0.8 million, contracts to purchase Euros and sell U.S. Dollars in the
amount of $3.8 million, contracts to purchase New Israeli Shekel and sell U.S. Dollars in
the amount of $2.5 million and contracts to purchase U.S. Dollars and sell New Israeli
Shekel in the amount of $8.5 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 June 30, 2009, and are sensitive to the above market risks.

During the six months ended June 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 June 30, 2009, the value of the
currency swaps contracts resulted in a $4.9 million increase in other assets and a
corresponding in interest and translation expenses.

As of June 30, 2009, the Company had
financial assets totaling $112.3 million and financial liabilities totaling $575.3
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 June 30, 2009, the Company did
not have fixed rate financial assets and had variable rate financial assets of $112.3
million. A ten percent decrease in interest rates would not increase the unrealized fair
value of the fixed rate assets.

As of June 30, 2009, the Company had
fixed rate debt of $319.3 million and variable rate debt of $256.0 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 $6.9 million.

The net decrease in earnings and cash
flows for the next year resulting from a ten percent interest rate increase would be
approximately $0.8 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 June 30, 2009, the Company had open foreign currency forward exchange contracts to
purchase U.S. Dollars and sell Euros in the amount of $0.8 million, contracts to purchase
Euros and sell U.S. Dollars in the amount of $3.8 million, contracts to purchase New
Israeli Shekel and sell U.S. Dollars in the amount of $2.5 million and contracts to
purchase U.S. Dollars and sell New Israeli Shekel in the amount of $8.5 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 $2.5 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 $22.1million, and a ten percent
increase in the Euro exchange rate would result in a net increase in losses and cash flows
of $0.4 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 June 30, 2009, the value of the currency swap resulted in a $3.4 million
decrease in other assets and a corresponding increase 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 fix interest rate of 2.95% as compare to a Libor in the
original loan agreement. As of June 30, 2009, the value of the currency swap resulted in a
$1.5 million increase in other assets and a corresponding increase in interest expense.

26

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Equity Price Risk

The Companys investments at
June 30, 2009 included trading marketable securities which are recorded at a fair value of
$3.3 million, including a net unrealized loss of $0.3 million, and $27.9 million of
trading securities that are classified as available for sale, including a net unrealized
loss of $1.5 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 $3.1 million. There will 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:
| | --- | ---------

|10.1 |  | English
Translation of Hebrew Language Agreement between Gadot Chemical Tankers and
                Terminals Ltd. and Erez I. Meltzer, dated April 13, 2009 (filed as
Exhibit 10.1 to Form                 8-K filed with the SEC on April 14, 2009 and
incorporated herein by reference).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 Eluz
CFO and Senior Vice President,
Finance and Treasurer
(Principal Financial Officer)
| |  | ----------------------------------------------------------------------------------------------------------------------------

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

Date: August 5, 2009

29

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AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES

Exhibit Index

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

|10.1 |  | English
Translation of Hebrew Language Agreement between Gadot Chemical Tankers and
                Terminals Ltd. and Erez I. Meltzer, dated April 13, 2009 (filed as
Exhibit 10.1 to Form                 8-K filed with the SEC on April 14, 2009 and
incorporated herein by reference).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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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