----

----

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

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

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

| New York                                                                          |   | 13-0435685            |
|-----------------------------------------------------------------------------------|--------|-----------------------|
| (State or Other Jurisdiction of                                                   |   | (I.R.S. Employer)     |
| Incorporation of Organization)                                                    |   | Identification Number |
|                                                                              |   |                  |
| 555 Madison AvenueNew 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. |

|  Large accelerated filer o  | Accelerated filer  x |
|--------------------------------------------|--------------------------------|

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

----

|     |              |                                                                                        |                                                        | Page   |
|----------|-------------------|---------------------------------------------------------------------------------------------|-------------------------------------------------------------|--------|
| Part I.  |              | Financial Information                                                                       |                                                        |
|     |              |                                                                                        |                                                        |   |
|     | Item 1.           | Financial Statements (unaudited)                                                            |                                                        |
|     |              |                                                                                        |                                                        |   |
|     |              | Consolidated Balance Sheet                                                                  | 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                                              | 9-20                                                        |
|     |              |                                                                                        |                                                        |   |
|     | Item 2.           | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20-31                                                       |
|     |              |                                                                                        |                                                        |   |
|     | Item 3.           | Quantitative and Qualitative Disclosures About Market Risk                                  | 32-33                                                       |
|     |              |                                                                                        |                                                        |   |
|     | Item 4.           | Controls and Procedures                                                                     | 33                                                          |
|     |              |                                                                                        |                                                        |   |
| Part II. | Other Information |                                                                                        |
|     |              |                                                                                        |                                                        |   |
|     |              | Item 1.                                                                                     | Legal Proceedings                                           | 34     |
|     |              |                                                                                        |                                                        |   |
|     |              | Item 1A.                                                                                    | Risk Factors                                                | 34     |
|     |              |                                                                                        |                                                        |   |
|     |              | Item 2.                                                                                     | Unregistered Sales of Equity Securities and Use of Proceeds | 34     |
|     |              |                                                                                        |                                                        |   |
|     |              | Item 3.                                                                                     | Defaults Upon Senior Securities                             | 34     |
|     |              |                                                                                        |                                                        |   |
|     |              | Item 4.                                                                                     | [Removed and Reserved]                                      | 34     |
|     |              |                                                                                        |                                                        |   |
|     |              | Item 5.                                                                                     | Other Information                                           | 34     |
|     |              |                                                                                        |                                                        |   |
|     |              | Item 6.                                                                                     | Exhibits                                                    | 34     |

----

   

| ASSETS AS OF                                                                 |   | September 30,2010 |      |   | December 31, 2009(*) |   |
|------------------------------------------------------------------------------|--------|-------------------|-----------|--------|----------------------|--------|
| (U.S. Dollars in thousands)                                                  |   | (Unaudited)       |      |   | (Audited)            |   |
|                                                                         |   |              |      |   |                 |   |
| Current assets:                                                              |   |              |      |   |                 |   |
| Cash and cash equivalents                                                    |   | $                 | 54,381    |   |                 | $      | 71,484 |   |
| Marketable securities                                                        |   |              | 857       |   |                 |   | 29,345 |   |
| Accounts receivable (Net of allowance for doubtful amounts of $2.8 and $1.4) |   |              | 190,314   |   |                 |   | 109,692 |   |
| Deposits, notes and loans receivable                                         |   |              | 13,609    |   |                 |   | 10,102 |   |
| Inventories                                                                  |   |              | 40,389    |   |                 |   | 33,204 |   |
| Other assets                                                                 |   |              | 27,148    |   |                 |   | 20,633 |   |
|        Total current assets               |   |              | 326,698   |   |                 |   | 274,460 |   |
| Non-current assets:                                                          |   |              |      |   |                 |   |   |   |
| Investments                                                                  |   |              | 371,394   |   |                 |   | 371,704 |   |
| Fixed assets, less accumulated depreciation of $47,717 and $22,510           |   |              | 248,329   |   |                 |   | 149,973 |   |
| Deposits, notes and loans receivable                                         |   |              | 42,726    |   |                 |   | 35,154 |   |
| Deferred income taxes                                                        |   |              | 35,091    |   |                 |   | 31,065 |   |
| Other assets                                                                 |   |              | 19,192    |   |                 |   | 15,274 |   |
| Goodwill                                                                     |   |              | 135,463   |   |                 |   | 67,056 |   |
| Intangible assets                                                            |   |              | 199,872   |   |                 |   | 15,355 |   |
|        Total Non-current assets           |   |              | 1,052,067 |   |                 |   | 685,581 |   |
|                                                                         |   |              |      |   |                 |   |   |   |
| TOTAL ASSETS                                                                 |   | $                 | 1,378,765 |   |                 | $      | 960,041 |   |

----

| LIABILITIES AND  EQUITY AS OF                               |   | September 30,2010 |      |   | December 31, 2009(*) |   |
|-----------------------------------------------------------------------|--------|-------------------|-----------|--------|----------------------|--------|
| (U.S. Dollars in thousands, except share amounts)                     |   | (Unaudited)       |      |   | (Audited)            |   |
|                                                                  |   |              |      |   |                 |   |
| LIABILITIES                                                           |   |              |      |   |                 |   |
| Current liabilities:                                                  |   |              |      |   |                 |   |
| Notes and loans payable and current maturities                        |   | $                 | 258,392   |   |                 | $      | 179,496 |   |
| Accounts payable, accrued expenses and others                         |   |              | 152,345   |   |                 |   | 109,917 |   |
|        Total current liabilities   |   |              | 410,737   |   |                 |   | 289,413 |   |
| Long term liabilities:                                                |   |              |      |   |                 |   |   |   |
| Notes and loans payable                                               |   |              | 391,855   |   |                 |   | 126,905 |   |
| Notes to partners                                                     |   |              | 100,005   |   |                 |   | 97,091 |   |
| Debentures                                                            |   |              | 269,863   |   |                 |   | 215,325 |   |
| Deferred income taxes                                                 |   |              | 10,276    |   |                 |   | 3,481 |   |
| Other long-term liabilities                                           |   |              | 11,990    |   |                 |   | 11,272 |   |
|        Total long-term liabilities |   |              | 783,989   |   |                 |   | 454,074 |   |
| Total liabilities                                                     |   |              | 1,194,726 |   |                 |   | 743,487 |   |
|                                                                  |   |              |      |   |                 |   |   |   |
| EQUITY |   |   |   |   |   |   |   |   |
|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Ampal's shareholders' equity:                                                                              |   |   |      |   |   |   |    |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|
| Class A Stock, par value $1.00 per share; authorized 100,000,000 and 100,000,000 shares; issued 63,277,321 |   |   |      |   |   |   |    |   |
| and 63,277,321 shares; outstanding 56,133,764 and 56,133,764 shares                                        |   |   | 63,277    |   |   |   | 63,277  |   |
|                                                                                                       |   |   |      |   |   |   |    |   |
| Additional paid-in capital                                                                                 |   |   | 183,172   |   |   |   | 184,287 |   |
|                                                                                                       |   |   |      |   |   |   |    |   |
| Retained earnings (accumulated deficiency)                                                                 |   |   | (23,348   | )      |   |   | 12,426  |   |
|                                                                                                       |   |   |      |   |   |   |    |   |
| Accumulated other comprehensive loss                                                                       |   |   | (6,903    | )      |   |   | (14,598 | )      |
|                                                                                                       |   |   |      |   |   |   |    |   |
| Treasury stock, at cost                                                                                    |   |   | (28,763   | )      |   |   | (28,763 | )      |
|                                                                                                       |   |   |      |   |   |   |    |   |
| Total Ampal shareholders’ equity                                                                     |   |   | 187,435   |   |   |   | 216,629 |   |
|                                                                                                       |   |   |      |   |   |   |    |   |
| Noncontrolling interest                                                                                    |   |   | (3,396    | )      |   |   | (75     | )      |
|                                                                                                       |   |   |      |   |   |   |    |   |
| Total equity                                                                                               |   |   | 184,039   |   |   |   | 216,554 |   |
|                                                                                                       |   |   |      |   |   |   |    |   |
| TOTAL LIABILITIES AND  EQUITY                                                                    |   | $      | 1,378,765 |   |   | $      | 960,041 |   |

----

  

| NINE MONTHS ENDED SEPTEMBER 30,                                                                            |   | 2010        |    |   |        | 2009 (*) |    |
|------------------------------------------------------------------------------------------------------------|--------|-------------|---------|--------|-------------|----------|---------|
| (U.S. Dollars in thousands, except per share amounts)                                                      |   | (Unaudited) |    |   | (Unaudited) |     |
|                                                                                                       |   |        |    |   |        |     |    |
| REVENUES:                                                                                                  |   |        |    |   |        |     |    |
| Chemical income                                                                                            |   | $           | 357,567 |   |        | $        | 299,183 |   |
| Communication  income                                                                            |   |        | 211,416 |   |        |     | -       |   |
| Real estate income                                                                                         |   |        | -       |   |        |     | 177     |   |
| Realized gains on investments                                                                              |   |        | 866     |   |        |     | 554     |   |
| Realized and unrealized gains (losses) on marketable securities                                            |   |        | 515     |   |        |     | (38     | ) |
| Translation gain                                                                                           |   |        |    |   |        |     | 3,731   |   |
| Interest income                                                                                            |   |        | 1,752   |   |        |     | 2,138   |   |
| Leisure-time income                                                                                        |   |        | 2,240   |   |        |     | 2,086   |   |
| Gain from redemption of debt, gain from change in ownership interest in a subsidiary and other income |   |        | 2,949   |   |        |     | 3,552   |   |
| Total revenues                                                                                             |   |        | 577,305 |   |        |     | 311,383 |   |
|                                                                                                       |   |        |    |   |        |     |    |   |
| EXPENSES:                                                                                                  |   |        |    |   |        |     |    |   |
| Chemical expense - cost of goods sold                                                                      |   |        | 327,163 |   |        |     | 272,524 |   |
| Communication expense - cost of services rendered                                                          |   |        | 151,644 |   |        |     | -       |   |
| Equity in losses of affiliates                                                                             |   |        | 156     |   |        |     | 1,203   |   |
| Interest expense                                                                                           |   |        | 44,067  |   |        |     | 25,902  |   |
| Translation loss                                                                                           |   |        | 7,109   |   |        |     | -       |   |
| Loss from sale of fixed assets                                                                             |   |        | -       |   |        |     | 102     |   |
| Marketing and sales expense                                                                                |   |        | 41,787  |   |        |     | 4,833   |   |
| General, administrative and other                                                                          |   |        | 47,080  |   |        |     | 29,727  |   |
| Total expenses                                                                                             |   |        | 619,006 |   |        |     | 334,291 |   |
| Loss before income taxes                                                                                   |   |        | (41,701 | )      |        |     | (22,908 | ) |
| Provision for tax benefits                                                                                 |   |        | (3,064  | )      |        |     | (2,845  | ) |
| Net Loss                                                                                                   |   |        | (38,637 | )      |        |     | (20,063 | ) |
| Less: Net income attributable to noncontrolling interests                                                  |   |        | (2,863  | )      |        |     | (816    | ) |
| Net loss attributable to Ampal's shareholders                                                              |   |        | (35,774 | )      |        |     | (19,247 | ) |
|                                                                                                       |   |        |    |   |        |     |    |   |
| Basic and diluted EPS:                                                                                     |   |        |    |   |        |     |    |   |
|     Loss per share                                                                     |   | $           | (0.64   | )      |        | $        | (0.34   | ) |
|                                                                                                       |   |        |    |   |        |     |    |   |
| Shares used in EPS calculation (in thousands)                                                              |   |        | 56,134  |   |        |     | 56,157  |   |

----

|                                                           |   |        |    |   |        |     |
|----------------------------------------------------------------|--------|-------------|---------|--------|-------------|----------|
| THREE MONTHS ENDED SEPTEMBER 30,                               |   | 2010        |    |   |        | 2009 (*) |   |
| (U.S. Dollars in thousands, except per share amounts)          |   | (Unaudited) |    |   | (Unaudited) |     |
|                                                           |   |        |    |   |        |     |   |
| REVENUES:                                                      |   |        |    |   |        |     |   |
| Chemical income                                                |   | $           | 121,243 |   |        | $        | 105,249 |   |
| Communication  income                                |   |        | 81,261  |   |        |     | - |   |
| Realized gains on investments                                  |   |        | 52      |   |        |     | 32 |   |
| Realized and unrealized gains on marketable securities         |   |        | 429     |   |        |     | 117 |   |
| Equity in earnings of affiliates                               |   |        | 42      |   |        |     | - |   |
| Interest income                                                |   |        | 1,224   |   |        |     | 439 |   |
| Leisure-time income                                            |   |        | 770     |   |        |     | 778 |   |
| Gain from redemption of debt and other income                  |   |        | 369     |   |        |     | 361 |   |
| Total revenues                                                 |   |        | 205,390 |   |        |     | 106,976 |   |
|                                                           |   |        |    |   |        |     |   |   |
| EXPENSES:                                                      |   |        |    |   |        |     |   |   |
| Chemical expense - cost of goods sold                          |   |        | 110,648 |   |        |     | 96,296 |   |
| Communication expense - cost of services rendered              |   |        | 59,075  |   |        |     | - |   |
| Equity in losses of affiliates                                 |   |        | -       |   |        |     | 928 |   |
| Interest expense                                               |   |        | 18,813  |   |        |     | 13,231 |   |
| Translation loss                                               |   |        | 17,721  |   |        |     | 8,228 |   |
| Loss from sale of fixed assets                                 |   |        | -       |   |        |     | 73 |   |
| Marketing and sales expense                                    |   |        | 15,734  |   |        |     | 1,475 |   |
| General, administrative and other                              |   |        | 16,568  |   |        |     | 10,207 |   |
|         Total expenses |   |        | 238,559 |   |        |     | 130,438 |   |
| Loss before income taxes                                       |   |        | (33,169 | )      |        |     | (23,462 | ) |
| Provision for tax benefits                                     |   |        | (1,817  | )      |        |     | (1,389 | ) |
| Net Loss                                                       |   |        | (31,352 | )      |        |     | (22,073 | ) |
| Less: Net income attributable to noncontrolling interests      |   |        | (5,550  | )      |        |     | (4,026 | ) |
| Net loss attributable to Ampal's shareholders                  |   |        | (25,802 | )      |        |     | (18,047 | ) |
|                                                           |   |        |    |   |        |     |   |   |
| Basic and diluted EPS:                                         |   |        |    |   |        |     |   |   |
|     Loss per share                         |   | $           | (0.46   | )      |        | $        | (0.32 | ) |
|                                                           |   |        |    |   |        |     |   |   |
| Shares used in EPS calculation (in thousands)                  |   |        | 56,134  |   |        |     | 56,157 |   |

----

  

| NINE MONTHS ENDED SEPTEMBER 30,                                                                          |   | 2010        |     |   |        | 2009 (*) |    |
|----------------------------------------------------------------------------------------------------------|--------|-------------|----------|--------|-------------|----------|---------|
| (U.S. Dollars in thousands)                                                                              |   | (Unaudited) |     |   | (Unaudited) |     |
|                                                                                                     |   |        |     |   |        |     |    |
| Cash flows from operating activities:                                                                    |   |        |     |   |        |     |    |
| Net loss for the period                                                                                  |   | $           | (38,637  | )      |        | $        | (20,063 | ) |
| Adjustments to reconcile net loss for the period to net cash provided by (used in) operating activities: |   |        |     |   |        |     |    |   |
| Equity in losses of affiliates                                                                           |   |        | 156      |   |        |     | 1,203   |   |
| Realized and unrealized gain on investments, net                                                         |   |        | (1,381   | )      |        |     | (516    | ) |
| Depreciation and amortization expense                                                                    |   |        | 47,548   |   |        |     | 11,719  |   |
| Loss from sale of fixed assets                                                                           |   |        | 12       |   |        |     | 100     |   |
| Non cash stock based compensation                                                                        |   |        | 481      |   |        |     | 707     |   |
| Translation (gain) loss                                                                                  |   |        | 7,109    |   |        |     | (3,731  | ) |
| Increase in other assets                                                                                 |   |        | (9,241   | )      |        |     | (522    | ) |
| Decrease (increase)  in inventories                                                            |   |        | (6,323   | )      |        |     | 7,581   |   |
| Decrease (increase) in accounts receivable                                                               |   |        | (1,209   | )      |        |     | 14,569  |   |
| Increase  (decrease) in accounts payable, accrued expenses and other                           |   |        | (1,515   | )      |        |     | 5,953   |   |
| Proceeds from sale of trading securities                                                                 |   |        | 1,761    |   |        |     | 2,408   |   |
| Dividends received from affiliates                                                                       |   |        | 928      |   |        |     | 584     |   |
|                                                                                                     |   |        |     |   |        |     |    |   |
| Net cash (used in) provided by operating activities                                                      |   |        | (311     | )      |        |     | 19,992  |   |
|                                                                                                     |   |        |     |   |        |     |    |   |
| Cash flows from investing activities:                                                                    |   |        |     |   |        |     |    |   |
| Deposits, notes and loans receivable collected                                                           |   |        | 10,500   |   |        |     | 7,252   |   |
| Deposits, notes and loans receivable granted                                                             |   |        | (17,850  | )      |        |     | (329    | ) |
| Purchase and improvements of fixed assets                                                                |   |        | (14,400  | )      |        |     | (36,978 | ) |
| Investments made in affiliates and others                                                                |   |        | (43,011  | )      |        |     | (1,906  | ) |
| Investments made in available-for-sale shares                                                            |   |        | (3,737   | )      |        |     | (8,961  | ) |
| Proceeds from sale of available-for-sale shares                                                          |   |        | 31,120   |   |        |     | 31,460  |   |
| Payment for rights of use of communication lines and other                                               |   |        | (12,583  | )      |        |     | -       |   |
| Acquisition of  the business of 012 (1)                                                        |   |        | (306,519 | )      |        |     | -       |   |
| Acquisition of ADPO (2)                                                                                  |   |        | (38,505  | )      |        |     | -       |   |
| Proceeds from sale of investments                                                                        |   |        | 1,980    |   |        |     | 546     |   |
| Proceeds from sale of fixed assets                                                                       |   |        | 338      |   |        |     | 657     |   |
|                                                                                                     |   |        |     |   |        |     |    |   |
| Net cash used in investing activities                                                                    |   |        | (392,667 | )      |        |     | (8,259  | ) |

----

|                                                            |   |        |    |   |        |     |
|-----------------------------------------------------------------|--------|-------------|---------|--------|-------------|----------|
| NINE MONTHS ENDED SEPTEMBER 30,                                 |   | 2010        |    |   |        | 2009 (*) |   |
| (U.S. Dollars in thousands)                                     |   | (Unaudited) |    |   | (Unaudited) |     |
|                                                            |   |        |    |   |        |     |   |
| Cash flows from financing activities:                           |   |        |    |   |        |     |   |
| Proceeds from notes issued and loans received                   |   | $           | 342,994 |   |        | $        | 28,737 |   |
| Notes and loans payable repaid                                  |   |        | (11,836 | )      |        |     | (24,878 | ) |
| Dividends paid                                                  |   |        | (1,372  | )      |        |     | - |   |
| Debentures issued                                               |   |        | 45,009  |   |        |     | - |   |
| Debentures repaid and shares repurchased                        |   |        | (2,256  | )      |        |     | (11,489 | ) |
| Acquisition of noncontrolling interests                         |   |        | (839    | )      |        |     | - |   |
| Distribution to minority                                        |   |        | -       |   |        |     | (419 | ) |
| Net cash (used in) provided by financing activities             |   |        | 371,700 |   |        |     | (8,049 | ) |
|                                                            |   |        |    |   |        |     |   |   |
| Effect of exchange rate changes on cash and cash equivalents    |   |        | 4,175   |   |        |     | 7,766 |   |
|                                                            |   |        |    |   |        |     |   |   |
| Net increase (decrease)  in cash and cash equivalents |   |        | (17,102 | )      |        |     | 11,450 |   |
| Cash and cash equivalents at beginning of period                |   |        | 71,484  |   |        |     | 68,718 |   |
|                                                            |   |        |    |   |        |     |   |   |
| Cash and cash equivalents at end of period                      |   | $           | 54,381  |   |        | $        | 80,168 |   |
|                                                            |   |        |    |   |        |     |   |   |
| Non-cash activities:                                            |   |        |    |   |        |     |   |   |
| Accounts payable in respect of fixed assets                     |   | $           | 2,732   |   |        | $        | - |   |

----

  

|                                                                |   |   Equity attributable to Ampal-American Israel Corporation shareholders |   |   |          |   |   |                            |   |
|---------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|--------|---------------|--------|--------|---------------------------------|--------|
|                                                                |   |   Class A Stock                                                         |   |   |          |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |   Numberof shares*                                                      |   |   |   Amount |   |   |   Additionalpaid-incapital |   |   |   Retainedearnings |   |   |   Accumulatedothercomprehensiveincome (loss |   |   |   Treasurystock |   |   |   Non-controllinginterests |   |   |   Totalequity |   |
|                                                                |   |                                                                         |   |   |          |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT JANUARY 1, 2010 (**)                                     |   |                                                                         | 63,277 |   |          |   | 63,277 |                            |   |   | 184,287 |   |   |   | 12,426 |   |   |   | (14,598 | ) |   |   | (28,763 | )  |   |   | (75 | ) |   |   | 216,554 |   |
| CHANGES DURING  THE NINE MONTHS ENDED SEPTEMBER 30, 2010: |   |                                                                         |   |   |          |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss for the period                                             |   |                                                                         |   |   |          |   |   |                            |   |   |   |   |   |   | (35,774 | ) |   |   |   |   |   |   |   |   |   |   | (2,863 | ) |   |   | (38,637 | )  |
| Unrealized loss from marketable securities                          |   |                                                                         |   |   |          |   |   |                            |   |   |   |   |   |   |   |   |   |   | (11 | )  |   |   |   |   |   |   |   |   |   |   | (11 | )  |
| Foreign currency translation adjustments                            |   |                                                                         |   |   |          |   |   |                            |   |   |   |   |   |   |   |   |   |   | 7,706 |   |   |   |   |   |   |   | (458 | ) |   |   | 7,248 |   |
| Total comprehensive loss                                            |   |                                                                         |   |   |          |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (31,400 | )  |
| Acquisition of  noncontrolling interests                  |   |                                                                         |   |   |          |   |   |                            |   |   | (368 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (368 | )  |
| Dividends paid                                                      |   |                                                                         |   |   |          |   |   |                            |   |   | (1,372 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,372 | )  |
| Share based compensation expense                                    |   |                                                                         |   |   |          |   |   |                            |   |   | 625 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 625 |   |
|                                                                |   |                                                                         |   |   |          |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT SEPTEMBER 30, 2010                                       |   |                                                                         | 63,277 |   |          |   | 63,277 |                            |   |   | 183,172 |   |   |   | (23,348 | )  |   |   | (6,903 | ) |   |   | (28,763 | )  |   |   | (3,396 | ) |   |   | 184,039 |   |

----

|                                                                |   |  Equity attributable to Ampal-American Israel Corporation shareholders |   |   |          |   |   |                                |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|--------|---------------|--------|--------|-------------------------------------|--------|
|                                                                |   |   Class A Stock                                                        |   |   |          |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |   |   Numberof shares*                                                     |   |   |   Amount |   |   |  Additionalpaid-incapital (**) |   |   |   Retainedearnings (**) |   |   |  Accumulatedothercomprehensiveincome (loss) (**) |   |   |   Treasurystock |   |   |   Non-controllingInterests (**) |   |   |   Totalequity |   |
| BALANCE AT JANUARY 1, 2009                                          |   |                                                                        | 63,277 |   |          |   | 63,277 |                                |   |   | 184,424 |   |   |   | 31,907 |   |   |   | (17,858 | )  |   |   | (28,500 | )  |   |   | 869 |   |   |   | 234,119 |   |
| CHANGES DURING  THE NINE MONTHS ENDED SEPTEMBER 30, 2009: |   |                                                                        |   |   |          |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss for the period                                             |   |                                                                        |   |   |          |   |   |                                |   |   |   |   |   |   | (19,247) |   |   |   |   |   |   |   |   |   |   |   | (816 | ) |   |   | (20,063 | ) |
| Unrealized loss from marketable securities                          |   |                                                                        |   |   |          |   |   |                                |   |   |   |   |   |   |   |   |   |   | (580 | )  |   |   |   |   |   |   |   |   |   |   | (580 | ) |
| Foreign currency translation adjustments                            |   |                                                                        |   |   |          |   |   |                                |   |   |   |   |   |   |   |   |   |   | 3,572 |   |   |   |   |   |   |   | (336 | ) |   |   | 3,236 |   |
| Total comprehensive income                                          |   |                                                                        |   |   |          |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (17,407 | ) |
| Dividends paid                                                      |   |                                                                        |   |   |          |   |   |                                |   |   | (80 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (80 | ) |
| Purchase of 292,103 shares                                          |   |                                                                        |   |   |          |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (263 | )  |   |   |   |   |   |   | (263 | ) |
| Share based compensation expense                                    |   |                                                                        |   |   |          |   |   |                                |   |   | 560 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 560 |   |
| BALANCE AT SEPTEMBER 30, 2009                                       |   |                                                                        | 63,277 |   |          |   | 63,277 |                                |   |   | 184,904 |   |   |   | 12,660 |   |   |   | (14,866 | )  |   |   | (28,763 | )  |   |   | (283 | ) |   |   | 216,929 |   |

----

   

| 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, 2009, filed with the Securities and Exchange Commission. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| 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 |
|----|--------------------------------|

|   | · | In late 2005, a contract was signed with the Israel Electric Corporation ("IEC") for up to 2.1 billion cubic meters ("BCM") annually over 15-20 years, which was last amended on September 17, 2009. The current total contracted gas supply to IEC is approximately 42 BCM and the total value of the contract is approximately $6 billion. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In December 2007, a contract was signed with Dorad Energy, Ltd. ("Dorad") (an independent power producer) which was last amended in March 2010. The contract determines that the duration of the gas supply will be for 17 years with an option to Dorad to extend the term for 5 more years, subject to certain conditions. The total contracted gas supply is expected to be between 12.5 BCM and 16 BCM and the total annual amount of revenue is expected to be between $125 million and $150 million. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On October 19, 2009, EMG entered into three contracts with respect to three combined cycle cogeneration plants (Ashdod Energy Ltd., Ramat Negev Energy Ltd. and Solad Energy Ltd.) with a total production capacity of 270 Megawatts and 240 tons of steam per hour. The contracts provide for gas deliveries over an 18 year contract period. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In November 2009, a contract was signed with Haifa Chemicals South Ltd., for gas supply for its industrial uses. The total value of the contract will be between $70 million and $100 million, over a contract term of 5-8 years. The gas delivery will start in the first quarter of 2011. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In December 2009, a contract was signed with Makhteshim-Agan for gas supply for its industrial uses over a contract term of 5 years. The gas delivery is scheduled to begin in the second quarter of 2011. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7. | Gadot Chemical Tankers and Terminals Ltd. (“Gadot”) |
|----|-----------------------------------------------------------------|

----

|   | · | Importing, marketing and sale of chemicals and other raw materials in Israel and Europe; |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | Shipping, primarily between the European ports of the Atlantic Ocean and the Mediterranean sea port and Agency Services for Shipping Companies and Docked Ships; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Logistical services in Israel and Europe. |
|--------|--------|-------------------------------------------|

| 8. | Acquisition of the Business of 012 Smile Communications Ltd. |
|----|--------------------------------------------------------------|

|   | On January 31, 2010 ("the Closing Date"), Ampal, through its indirect wholly owned subsidiary Merhav Ampal Energy Ltd. (“MAE”) and MAE's wholly owned subsidiary 012 Smile Telecom Ltd. ("012 Smile," formerly Ampal Investments and Communications 2009 Ltd.), closed the transaction to purchase the business of 012 Smile Communications Ltd. (“012”), pursuant to an Asset Purchase Agreement (the "012 Agreement") between MAE (on behalf of 012 Smile) and 012, dated November 16, 2009, as amended on January 26, 2010 ("012 Acquisition") for 1.2 billion New Israeli Shekels ("NIS"), or approximately $322 million. Ampal, through its subsidiaries, acquired substantially all the assets and liabilities of 012, including all of its customer and supplier agreements, management, employees, infrastructure, equipment and other assets, but excluding (i) certain retained cash and other customary excluded assets, (ii) the rights and obligations of 012 related to the acquisition of Bezeq – The Israeli Telecommunications Corporation Ltd. and (iii) certain indebtedness and other liabilities.  Prior to closing of the acquisition, 012 Smile received all required licenses for the conduct continuing of the business from the Israeli Ministry of Communications ("Ministry of Communications"). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The purchase of 012’s business further diversified Ampal's business and added the communications sector to Ampal's holdings. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | Ampal's management has been managing the strategy and day to day operations of the acquired business since January 1, 2010. In the period from January 1, 2010 to the Closing Date, the operations Ampal purchased generated cash in the amount of $3.1 million. This amount was transferred from 012 to 012 Smile on the Closing Date and was deducted from the purchase price in accordance with the requirements of GAAP. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As a result of the 012 acquisition, 012 Smile has become a leading provider of communication services in Israel, offering a wide range of broadband and traditional voice services. 012 Smile's broadband services include broadband Internet access with a suite of value-added services, specialized data services and server hosting, as well as new innovative services such as local telephony via voice over broadband and a WiFi network of hotspots across Israel. Traditional voice services include outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services. 012 Smile services residential and business customers, as well as Israeli cellular operators and international communication services providers through its integrated multipurpose network, which allows 012 Smile to provide services to almost all of the homes and businesses in Israel. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ampal financed the 012 transaction with a combination of (i) available cash, (ii) the proceeds of a new 012 Credit Facility, dated January 31, 2010 (the “012 Credit Facility”), between 012 Smile, Bank Leumi Le'Israel B.M. ("Leumi") and Israel Discount Bank Ltd. ("Discount," and together with Leumi, the "Bank Lenders"), for NIS 800 million (approximately $215 million), and (iii) a Loan Agreement, dated January 31, 2010 (the "012 Loan Agreement"), between MAE, 012 Smile, Harel Insurance Company Ltd. and its affiliates (collectively, "Harel") and Menora Mivtachim Insurance Ltd. and its affiliates (collectively, "Menora," and together with Harel, the "Institutional Lenders"), for NIS 220 million (approximately $59 million). Ampal guaranteed the obligations of 012 Smile under the 012 Credit Facility. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The purchase price was $319 million, consisting of $322 million paid in cash at closing and reduced by the $3.1 million of cash that was transferred from 012 to 012 Smile on the 012 Closing Date, representing the cash generated during the period from January 1, 2010 through the closing. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The purchase price was allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach and a variation of the income approach known as the profit allocation method, which discounts expected future cash flows to present value using estimates and assumptions determined by management. Purchased identifiable intangible assets are amortized on a straight-line basis over their respective useful lives. Our allocation of the purchase price is summarized in the table below (in thousands): |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                              |  (In thousands) |   |
|-----------------------------------|----------------------|--------|
| Accounts receivable – trade |                 | $      | 59,327 |   |
| Accounts receivable - other       |                 |   | 3,763 |   |
| Accounts payable - trade          |                 |   | (44,687 | ) |
| Accounts payable - other          |                 |   | (21,519 | ) |
| Property and equipment            |                 |   | 49,288 |   |
| Intangible assets                 |                 |   | 104,896 |   |
| Other                             |                 |   | (1,415 | ) |
| Trade names                       |                 |   | 20,831 |   |
| Customer base                     |                 |   | 74,619 |   |
| Other intangible assets           |                 |   | 10,388 |   |
| Goodwill                          |                 |   | 63,611 |   |
|                              |                 | $      | 319,102 |   |

|   | Our estimated useful life of the identifiable intangible assets acquired is thirteen years for the trade name, nine years for customer base and one year for other intangibles. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Customer base - The customer base was valued using a variation of the income approach. Under this approach, the Company estimated the present value of expected future cash flows resulting from the existing customer relationships, considering attrition and charges for contributory assets utilized in the business. The customer relationships are amortized to depreciation and amortization, over a weighted average amortization period of eight years, based on the expected discounted future net cash flows by year. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Trade names - The trade names were valued using a “relief from royalty” method, an approach under which fair value is estimated to be the present value of royalties saved. The trade names were valued in three parts based on 012’s three primary segments. The trade names are amortized to depreciation and amortization, on a straight-line basis, over 13 years. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Set forth below are the pro forma combined condensed income statements for the nine months and three months ended September 30, 2010 and 2009, assuming that the acquisition of 012 had occurred on January 1, 2010 and 2009, respectively, after giving effect to certain adjustments, including amortization of identifiable intangible assets of 012, the elimination of intercompany transactions and profits not yet realized outside the Company. See also Note 18. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | Nine months ended September 30,       |    |   | Three months ended September 30,      |   |
|--------------------------------------|--------|---------------------------------------|---------|--------|---------------------------------------|--------|
|                                 |   | 2010                                  |    |   | 2009                                  |   |   | 2010 |   |   | 2009 |   |
|                                 |   | $ In thousands(except per share data) |    |   | $ In thousands(except per share data) |   |
| Revenues                             |   |                                  | 603,500 |   |                                  |   | 526,656 |   |   |   | 205,390 |   |   |   | 183,710 |   |
|                                 |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                             |   |                                  | (36,099 | )      |                                  |   | (24,764 | ) |   |   | (25,802 | ) |   |   | (19,507 | ) |
|                                 |   |                                  |    |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Loss per share - primary and diluted |   |                                  | (0.64   | )      |                                  |   | (0.44 | ) |   |   | (0.46 | ) |   |   | (0.35 | ) |

|   | On July 1, 2010, Gadot, through its subsidiary, completed the acquisition of all of the issued share capital of Merhav Agro Ltd. (“Agro”). Agro is one of the leading suppliers of plant protection products, plant growth regulators and seeds in Israel. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Upon closing, Gadot paid, as consideration, NIS 108 million (approximately $27.8 million). To fund the purchase price, Gadot obtained a long-term credit facility in the aggregate principal amount of NIS 108 million (approximately $27.8 million) from Israel Discount Bank Ltd. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The acquisition of Agro was accounted for as a combination of entities under common control, which is similar to the pooling of interests method of accounting for business combinations. Accordingly, the consolidated financial statements give retrospective effect to this transaction. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | FASB ASC 805, Business Combinations, excludes transfers of net assets or exchanges of equity interests between entities under common control. ASC 805 also states that transfers of net assets or exchanges of equity interests between entities under common control should be accounted for similar to the pooling-of-interests method (as-if pooling-of-interests) in that the entity that receives the net assets or the equity interests initially recognizes the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Because Gadot and Agro were under common control at the time of the acquisition, the transfer of assets and liabilities of Agro was accounted for at historical cost in a manner similar to a pooling-of-interests. For financial accounting purposes, the acquisition was viewed as a change in reporting entity and, as a result, required reclassification of the Company's financial statements for all periods subsequent to October 18, 2008, the date on which Agro was acquired. Accordingly, the Company's consolidated balance sheet as of December 31, 2009, the consolidated statements of operations for the nine and three months ended September 30, 2009 and the statements of changes in equity and consolidated statements of cash flows for the nine months ended September 30, 2009 were reclassified to include Agro. Agro's financial data has been included in the Chemicals segment. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In as-if pooling-of-interests accounting, financial statements of the previously separate companies for periods under common control prior to the combination are reclassified on a combined basis to furnish comparative information. At December 31, 2009, the Company added net liabilities of $5.4 million. For the nine months ended September 30, 2009, the Company added revenue and net loss of $11.8 million and $0.2 million, respectively. For the nine months ended September 30, 2010, the Company added revenue and net income of $13.9 million and $1.0 million, respectively. For the three months ended September 30, 2009, the Company added revenue and net income of $4.2 million and $0.1 million, respectively. For the three months ended September 30, 2010, the Company added revenue and net income of $4.6 million and $0.8 million, respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10. | Acquisition of ADPO GHENT NV |
|-----|------------------------------|

|   | On August 20, 2010, Gadot, through its subsidiary, acquired 100% of the issued and outstanding share capital of ADPO Ghent N.V. (“ADPO”) for a purchase price of €30 million (approximately $38.5 million). Gadot’s subsidiary obtained a long-term credit facility from Israel Discount Bank Ltd. for the financing of the purchase price. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ADPO owns and operates a chemical storage terminal in Ghent, Belgium, over an area of 25 hectares of land, with a storage capacity of approximately 100,000 cubic meters. The Company believes that the acquisition will allow Gadot to expand its global business and maximize its ability to deliver products and services worldwide. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table summarizes the consideration paid for ADPO and the preliminary fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands): |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Current assets                |   | $      | 8,874  |   |
|-------------------------------|--------|--------|--------|--------|
| Property, plant and equipment |   |   | 47,385 |   |
| Goodwill                      |   |   | 1,995  |   |
| Current liabilities           |   |   | (4,918 | )      |
| Deferred income taxes         |   |   | (6,658 | )      |
| Other long-term liabilities   |   |   | (8,173 | )      |
| Total consideration paid      |   | $      | 38,505 |   |

|   | Goodwill consists of assembled workforce, as well as synergistic opportunities created by combining the operations of ADPO and the other subsidiaries of the Company. All of the goodwill was assigned to the Company’s Chemical segment. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company expensed a total of $0.6 million of acquisition-related costs during the nine month period ended September 30, 2010, which was recorded as general and administrative expenses in the condensed consolidated statements of operations. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 11. | Sugarcane Ethanol Production Project |
|-----|--------------------------------------|

| 12.  | Services and Management Agreements |
|-----------|------------------------------------|

----

| 13.  | Derivatives and Other Financial Instruments |
|-----------|---------------------------------------------|

|                    |   |         |   | (U.S. Dollars in thousands) |   |
|-------------------------|--------|--------------|--------|-----------------------------|--------|
| Derivative Instrument   |   | Location     |   | September 30, 2010          |   |   | December 31, 2009 |   |   | September30, 2009 |   |
| SWAP contracts          |   | Other assets |   |                        | 3,691  |   |   |   | 3,123 |   |   |   | 2,094 |   |
| Exchange rate contracts |   | Other assets |   |                        | -      |   |   |   | 60 |   |   |   | 30 |   |

|                    |   |                                          |   | (U.S. Dollars in thousands) |   |
|-------------------------|--------|-----------------------------------------------|--------|-----------------------------|--------|
| Derivative Instrument   |   | Location                                      |   | September 30, 2010          |   |   | December 31, 2009 |   |   | September30, 2009 |   |
| SWAP contracts          |   | Accounts payable, accrued expenses and others |   |                        | 1,465  |   |   |   | - |   |   |   | - |   |
| Exchange rate contracts |   | Accounts payable, accrued expenses and others |   |                        | 76     |   |   |   | 39 |   |   |   | 301 |   |

----

|                        |   |                    |   | (U.S. Dollars in thousands)     |   |
|-----------------------------|--------|-------------------------|--------|---------------------------------|--------|
|                        |   |                    |   | Nine months ended September 30, |   |
| Derivative Instrument       |   | Location                |   | 2010                            |   |   | 2009 |   |
| SWAP contract               |   | Translation (loss) gain |   |                            | 2,178  |   |   |   | 5,736 |   |
| Interest rate SWAP contract |   | Interest gain (loss)    |   |                            | (3,075 | ) |   |   | (276 | ) |
| Exchange rate contracts     |   | Translation (loss) gain |   |                            | (39    | ) |   |   | 970 |   |

| 14.  | Fair Value Measurements |
|-----------|-------------------------|

|   | Fair value is defined 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 used by the Company within ASC 820 distinguishes between three levels of inputs that may be utilized when measuring fair values 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 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 at 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. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Fair Value Measurements as of : |   |    |              |    |   |              |   |   |    |   |
|---------------------------------|--------|---------|-------------------|---------|--------|-------------------|--------|--------|---------|--------|
|                            |   |    | September30, 2010 |    |   | December 31, 2009 |   |
|                            |   | Level 1 |              | Level 2 |   | Total             |   |   | Level 1 |   | Level 2 |   | Total |   |
| Trading securities *            |   | $       | 366               |    |   | $                 | -      |   |    | $      | 366 |   |   | $ | 2,152 |   |   | $ | - |   |   | $ | 2,152 |   |
| Available for sale securities * |   |    | 491               |    |   |              | -      |   |    |   | 491 |   |   |   | 27,193 |   |   |   | - |   |   |   | 27,193 |   |
| Derivative assets **            |   |    | -                 |    |   |              | 3,691  |   |    |   | 3,691 |   |   |   | - |   |   |   | 3,183 |   |   |   | 3,183 |   |
| Derivative liabilities **       |   |    | -                 |    |   |              | (1,541 | )      |    |   | (1,541 | ) |   |   | - |   |   |   | (39 | ) |   |   | (39 |   |
| Total                           |   | $       | 857               |    |   | $                 | 2,150  |   |    | $      | 3,007 |   |   | $ | 29,345 |   |   | $ | 3,144 |   |   | $ | 32,489 |   |

|   | Marketable securities that are classified in Level 1 consist of available-for-sale and trading securities for which market prices are readily available. The fair value of derivative assets is 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. |
|--------|------------------------------------------------------------------------------------------|

----

| 15. | Segment information presented below, results primarily from operations in Israel. |
|-----|-----------------------------------------------------------------------------------|

|                                                 |   |   NINE MONTHS ENDED  SEPTEMBER 30, |    | THREE  MONTHS ENDED  SEPTEMBER 30, |                   |
|------------------------------------------------------|--------|---------------------------------------------------|---------|--------------------------------------------------------|------------------------|
|                                                 |   | 2010                                              |    |                                                   | 2009(*)                |   |   | 2010 |   |   |  2009(*) |   |
|                                                 |   |  (Dollars in thousands)                      |    |                                                   | (Dollars in thousands) |   |
| Revenues:                                            |   |                                              |    |                                                   |                   |   |   |   |   |   |   |   |
| Chemicals                                            |   | $                                                 | 357,567 |                                                   |                   | $ | 299,183 |   |   | $ | 121,243 |   |   | $ | 105,249 |   |
| Communications                                       |   |                                              | 211,416 |                                                   |                   |   | - |   |   |   | 81,261 |   |   |   | - |   |
| Finance                                              |   |                                              | 6,082   |                                                   |                   |   | 10,114 |   |   |   | 2,074 |   |   |   | 949 |   |
| Leisure-time                                         |   |                                              | 2,240   |                                                   |                   |   | 2,086 |   |   |   | 770 |   |   |   | 778 |   |
|                                                 |   |                                              | 577,305 |                                                   |                   |   | 311,383 |   |   |   | 205,348 |   |   |   | 106,976 |   |
| Equity in earnings of affiliates                     |   |                                              | -       |                                                   |                   |   | - |   |   |   | 42 |   |   |   | - |   |
| Total consolidated revenues                          |   | $                                                 | 577,305 |                                                   |                   | $ | 311,383 |   |   | $ | 205,390 |   |   | $ | 106,976 |   |
|                                                 |   |                                              |    |                                                   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Pre-tax Operating Gain (loss):                       |   |                                              |    |                                                   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Chemicals                                            |   | $                                                 | (7,063  | )                                                      |                   | $ | (818 | ) |   | $ | (4,338 | ) |   | $ | 3,816 |   |
| Communications                                       |   |                                              | 1,265   |                                                   |                   |   | - |   |   |   | (519 | ) |   |   | - |   |
| Finance                                              |   |                                              | (35,734 | )                                                      |                   |   | (21,076 | ) |   |   | (28,283 | ) |   |   | (26,169 | ) |
| Leisure-time                                         |   |                                              | (13     | )                                                      |                   |   | 189 |   |   |   | (71 | ) |   |   | (181 | ) |
|                                                 |   |                                              | (41,545 | )                                                      |                   |   | (21,705 | ) |   |   | (33,211 | ) |   |   | (22,534 | ) |
| Equity in  earnings (losses) of affiliates |   |                                              | (156    | )                                                      |                   |   | (1,203 | ) |   |   | 42 |   |   |   | (928 | ) |
| Total consolidated pretax loss                       |   | $                                                 | (41,701 | )                                                      |                   | $ | (22,908 | ) |   | $ | (33,169 | ) |   | $ | (23,462 | ) |

| TOTAL ASSETS AS OF SEPTEMBER 30, |   | 2010   |      |   |   | 2009(*) |     |
|----------------------------------|--------|--------|-----------|--------|--------|---------|----------|
| Total Assets:                    |   |   |      |   |   |    |     |
| Chemicals                        |   | $      | 472,274   |   |   | $       | 419,199  |   |
| Communications                   |   |   | 394,430   |   |   |    | -        |   |
| Finance                          |   |   | 603,710   |   |   |    | 510,146  |   |
| Energy                           |   |   | 361,323   |   |   |    | 361,323  |   |
| Leisure-Time                     |   |   | 3,799     |   |   |    | 3,456    |   |
| Inter-segments adjustments       |   |   | (456,769  | )      |   |    | (337,274 | ) |
| Total consolidated assets        |   | $      | 1,378,767 |   |   | $       | 956,850  |   |

----

| 16. | The following table summarizes securities that were not included in the calculations of diluted earnings per share of Class A Stock for the periods ended September 30, 2010 and 2009 because such shares are anti-dilutive. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (Shares in thousands)                    |   | Nine Months endedSeptember 30, |   |   | Three Months endedSeptember 30, |   |
|------------------------------------------|--------|-------------------------------------|--------|--------|--------------------------------------|--------|
|                                     |   | 2010                                |   |   | 2009                                 |   |   | 2010 |   |   | 2009 |   |
|                                     |   |                                |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Shares resulting from Options and Rights |   |                                | 3,783  |   |                                 |   | 2,921 |   |   |   | 3,783 |   |   |   | 2,921 |   |

| 17. | LEGAL PROCEEDINGS: |
|-----|--------------------|

|   | 1. | On January 2, 2005, a claim was made against 012 and three other companies regarding alleged infringement of Israeli Patent No. 76993 of November 10, 1985, unjust enrichment, breach of statutory duties and conversion (the “2005 Claim”). The plaintiffs’ demands include payment of amounts of income generated from exploitation of the patent, payment of reasonable royalties for exploitation of the patent, punitive damages, litigation costs and attorneys’ fees, and payment of linkage differentials and interest from the date of creation of the debt until the date of actual payment. The 2005 Claim states that the monetary amount cannot be determined at this stage and that it has been assessed for the purpose of court fees only at NIS 10 million (approximately $2.72 million), against all defendants collectively and separately. Therefore, the Company cannot currently estimate the range of possible loss. On July 17, 2005, a statement of defense was filed against plaintiffs and a third party notice was filed against the providers of the telecommunications systems allegedly infringing on the patent (the “Third Party Defendants”), seeking indemnification and compensation for any liability that may be imposed in the context of the 2005 Claim (the “Third Party Proceedings”). The plaintiffs have also initiated similar proceedings against other telecommunications companies in other countries, including the United Kingdom and the United States. Some telecommunications companies, including one of the initial defendants named in this 2005 Claim, have settled with the plaintiffs and obtained a license, whereas other telecommunications companies have refused to settle. For example, the corresponding English patent was declared invalid following a legal action and appeals. In the 2005 Claim, a pre-trial hearing was held on February 14, 2010, and on such date the parties mutually exchanged affidavits in response to discovery requests and interrogatories. Another pre-trial hearing was held on June 30, 2010, at which time the court ordered the parties to complete all preliminary proceedings by no later than October 3, 2010. On September 28, 2010, the court extended such date until January 1, 2011. One of the Third Party Defendants in the Third Party Proceedings is Nortel Networks Israel (Sales and Marketing) Ltd. (“Nortel Israel”). In a separate proceeding, on January 19, 2009, the District Court of Tel Aviv issued an ex parte order according to which all legal proceedings to which Nortel Israel is a party, including the above-mentioned Third Party Proceedings, were stayed and the District Court also appointed Adv. Avi D. Pelossof and accountant Yaron Har-Zvi as Nortel Israel's Trustees. On February 25, 2009, 012 and another defendant in the 2005 Claim, filed a motion with the court requesting that it allow 012 and the other applicant to continue the Third Party Proceedings against Nortel Israel. This motion was later granted by the court. On November 24, 2009, the court approved Nortel Israel's proposed Creditors Arrangement. 012 and Nortel Israel's Trustees have reached a Settlement Agreement, resolving all disputes in connection with the Third Party Proceedings between 012 and Nortel Israel (the “Settlement Agreement”). Under the terms of the Settlement Agreement, Nortel Israel paid 012 NIS 787,500 (approximately $214,900), which was paid by the trustees in full.  In consideration, 012 agreed to dismiss the Third Party Proceedings against Nortel Israel and Telrad Networks Ltd. ("Telrad").  On February 14, 2010, the court dismissed the Third Party Proceedings against Nortel Israel and Telrad. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 2. | In April 2008, a motion to certify a class action was filed with various District Courts in Israel against several international telephony companies including 012, with respect to prepaid calling card services. The plaintiffs allege that: (i) the defendants unlawfully charged consumers in excess of the tariffs published by them, (ii) the prepaid calling cards provide an average of 50% of the units of time indicated to the purchasers of the cards, (iii) the defendants deducted from the prepaid calling cards the time spent when a user unsuccessfully attempts to make a call utilizing the card, (iv) the defendants calculated and collected payment not by units of round minutes indicated, (v) the defendants provided misleading information about the number of “units” on the card, and (vi) the defendants formed a cartel that arranged and raised the prices of calling cards. In the event the lawsuit is certified as a class action, the total amount claimed against 012 is NIS 226.4 million (approximately $61.77 million). The Company cannot currently estimate the range of possible loss. 012 Smile, as successor to 012, filed its summation on June 13, 2010, the plaintiffs' respondent summation was filed on July 22, 2010. On November 3, 2010, the court granted the plaintiff's request and certified the suit as a class action against all of the defendants. The legal question at issue in the class action is whether the plaintiffs were misled by the representations made by the defendants. In addition, the matters of damages, causal relation, liability and amount of damage will also be litigated. The court has ordered the parties to formulate a public announcement in the matter of the class action proceeding that shall be approved by the court. In addition, the court has ordered the parties to inform the court within 30 days as to the way in which they wish to continue and conduct the proceeding, and if such notice is not be submitted to the court, the proceeding will be scheduled for an evidentiary hearing. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | In November 2008, a motion to certify a class action was filed with the Tel Aviv District Court in Israel against 012. The action alleges that 012 unlawfully raised the monthly tariffs for its Internet services. The total amount of the claim is NIS 81.5 million (approximately $22.2 million). The Company cannot currently estimate the range of possible loss. 012 replied to the motion in May 2009. A pre-trial hearing was held in January 2010. The case is scheduled for an additional pre-trial hearing on November 3, 2010. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | In November 2009, a motion to certify a class action was filed against 012 with the Central District Court in Israel. Together with the filing of the motion, the plaintiff filed a motion for a temporary restrictive order to prevent 012 from deleting or changing data relating to the plaintiff's claims in the motion. The motion alleges that 012 has violated the Israeli "anti spam" law by sending advertising materials to its customers.  The amount of the plaintiff's personal claim is set at NIS 10,000 (approximately $2,700). The estimated amount of the entire claim is yet to be known, and therefore, the Company cannot currently estimate the range of possible loss. On November 29, 2009, the court granted a temporary order preventing 012 from deleting or changing data relating to specific messages which the plaintiff claims he sent to 012. 012 Smile, as successor to 012, filed its response to the motion in February 2010. A court hearing was held in March 2010 and the court ordered the plaintiff to notify the court by May 17, 2010 whether he intends to litigate the claim and the request or to submit a motion to withdraw. On May 13, 2010, the plaintiff filed a motion to withdraw the suit, subject to payment of the plaintiff's legal fees by 012 Smile. On June 13, 2010, the court declined the motion, and on September 14, 2010, the plaintiff filed a motion to amend his suit and request. 012 Smile filed its response to the motion on November 4, 2010. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | In November 2009, a motion to certify a class action was filed against 012 with the Tel Aviv District Court in Israel. The motion alleges that 012 unlawfully charges its customers who do not pay their debts on time with collection expenses. The estimated amount of the entire claim is NIS 21.75 million (approximately $5.93 million). The Company cannot currently estimate the range of possible loss. 012 Smile, as successor to 012, replied to the motion on June 14, 2010. The plaintiff filed his response on July 11, 2010. A pre-trial hearing is scheduled for November 30, 2010. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | In December 2009, a motion to certify a class action was filed against 012 with the Central District Court in Israel. The motion alleges that 012 unlawfully intervenes with web traffic, especially as it relates to Peer to Peer websites. The estimated amount of the entire claim is NIS 40 million (approximately $10.91 million). The Company cannot currently estimate the range of possible loss. 012 Smile, as successor to 012, has replied to the motion. A pre-trial hearing is scheduled for November 16, 2010. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | In January 2010, a motion to certify a class action was filed against 012, 012's subsidiary, 012 Telecom Ltd., and others with the Central District Court in Israel. The motion alleges that 012 unlawfully charges its customers when placing calls to 012's support center. The total amount of the action against 012 and its subsidiary is approximately NIS 48.6 million (approximately $13.26 million). The Company cannot currently estimate the range of possible loss. 012 Smile, as successor to 012, replied to the motion on October 17, 2010. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 1. | In May 2010, a motion to certify a class action was filed against 012 Smile with the Tel Aviv District Court in Israel. The motion alleges that 012 Smile unlawfully charges its customers with higher tariffs than the tariffs agreed. The total amount of the action against 012 Smile is approximately NIS 3.0 million (approximately $0.81 million). The Company cannot currently estimate the range of possible loss. 012 Smile has not yet replied to the motion. The motion has not yet been scheduled to be heard. The motion has not yet been scheduled to be heard. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | In September 2010, a motion to certify a class action was filed against 012 Smile with the Tel-Aviv District Court in Israel. The plaintiff alleges that 012 Smile pays rebates without adding interest or linkage to the Israeli Consumer Price Index. The amount of the personal claim is set by the plaintiff at approximately NIS 1.2. In the event of certification of the suit as a class action, the estimated amount of the claim by the plaintiff will be approximately NIS 11.17 million (approximately $3 million). The Company cannot currently estimate the range of possible loss. 012 Smile has not yet replied to the motion. The motion has not yet been scheduled to be heard. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | In July 2010, a motion to certify a class action was filed against 012 Smile with the Central District Court in Israel. The plaintiff alleges that 012 Smile's internet advertisements regarding certain tariffs did not include complete information as to possible additional tariffs charged of third parties. The amount of the personal claim is set by the plaintiff at NIS 397 (approximately $108). As the plaintiff has not yet determined the size of the group, the estimated amount of the entire claim is not yet known. 012 Smile has not yet replied to the motion. The motion has not yet been scheduled to be heard. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 18. | Subsequent Events |
|-----|-------------------|

  

----

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

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

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

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

----

|                                              |   | 2010                       |   |   |   | 2009(*) |   |
|---------------------------------------------------|--------|----------------------------|--------|--------|--------|---------|--------|
|                                              |   | (U.S. dollars in millions) |   |
| Chemical income                                   |   | $                          | 357.6  |   |   | $       | 299.2  |   |
| Chemical expense                                  |   | $                          | 327.2  |   |   | $       | 272.5  |   |
| Marketing and sales expense                       |   | $                          | 5.8    |   |   | $       | 4.8    |   |
| Other expense (mainly general and administrative) |   | $                          | 23.0   |   |   | $       | 17.4   |   |
| Interest expense                                  |   | $                          | 8.5    |   |   | $       | 5.5    |   |

----

|                                              |   | 2010                       |   |
|---------------------------------------------------|--------|----------------------------|--------|
|                                              |   | (U.S. dollars in millions) |   |
| Communications income                             |   | $                          | 211.4  |   |
| Communications expense                            |   | $                          | 151.6  |   |
| Marketing and sales expense                       |   | $                          | 36.0   |   |
| Other expense (mainly general and administrative) |   | $                          | 10.2   |   |
| Interest expense                                  |   | $                          | 10.6   |   |

----

|           |   | 2010                        |    |   |   | 2009(*) |    |
|----------------|--------|-----------------------------|---------|--------|--------|---------|---------|
|           |   | (U.S. Dollars in thousands) |    |
|           |   |                        |    |   |   |    |    |
| Revenues:      |   |                        |    |   |   |    |    |
|           |   |                        |    |   |   |    |    |
| Chemicals      |   | $                           | 357,567 |   |   | $       | 299,183 |   |
| Communications |   |                        | 211,416 |   |   |    | -       |   |
| Finance        |   |                        | 6,082   |   |   |    | 10,114  |   |
| Leisure-time   |   |                        | 2,240   |   |   |    | 2,086   |   |
| Total          |   |                        | 577,305 |   |   |    | 311,383 |   |

----

|                           |   | 2010                        |    |   |   | 2009(*) |    |
|--------------------------------|--------|-----------------------------|---------|--------|--------|---------|---------|
|                           |   | (U.S. Dollars in thousands) |    |
|                           |   |                        |    |   |   |    |    |
| Expenses:                      |   |                        |    |   |   |    |    |
|                           |   |                        |    |   |   |    |    |
| Chemicals                      |   | $                           | 364,630 |   |   | $       | 294,787 |   |
| Communications                 |   |                        | 210,151 |   |   |    | -       |   |
| Finance                        |   |                        | 41,816  |   |   |    | 36,302  |   |
| Leisure-time                   |   |                        | 2,253   |   |   |    | 1,999   |   |
|                           |   |                        | 618,850 |   |   |    | 333,088 |   |
| Equity in losses of affiliates |   |                        | 156     |   |   |    | 1,203   |   |
| Total                          |   | $                           | 619,006 |   |   | $       | 334,291 |   |

----

|                           |   | 2010                        |    |   |   | 2009(*) |    |
|--------------------------------|--------|-----------------------------|---------|--------|--------|---------|---------|
|                           |   | (U.S. Dollars in thousands) |    |
|                           |   |                        |    |   |   |    |    |
| Revenues:                      |   |                        |    |   |   |    |    |
|                           |   |                        |    |   |   |    |    |
| Chemicals                      |   | $                           | 121,243 |   |   | $       | 105,249 |   |
| Communications                 |   |                        | 81,261  |   |   |    | -       |   |
| Finance                        |   |                        | 2,074   |   |   |    | 949     |   |
| Leisure-time                   |   |                        | 770     |   |   |    | 778     |   |
|                           |   |                        | 205,348 |   |   |    | 106,976 |   |
| Equity in losses of affiliates |   |                        | 42      |   |   |    | -       |   |
| Total                          |   | $                           | 205,390 |   |   | $       | 106,976 |   |

----

|                           |   | 2010                        |    |   |   | 2009(*) |    |
|--------------------------------|--------|-----------------------------|---------|--------|--------|---------|---------|
|                           |   | (U.S. Dollars in thousands) |    |
|                           |   |                        |    |   |   |    |    |
| Expenses:                      |   |                        |    |   |   |    |    |
|                           |   |                        |    |   |   |    |    |
| Chemicals                      |   | $                           | 125,580 |   |   | $       | 101,433 |   |
| Communications                 |   |                        | 81,780  |   |   |    | -       |   |
| Finance                        |   |                        | 30,358  |   |   |    | 27,118  |   |
| Leisure-time                   |   |                        | 841     |   |   |    | 959     |   |
|                           |   |                        | 238,559 |   |   |    | 129,510 |   |
| Equity in losses of affiliates |   |                        | -       |   |   |    | 928     |   |
| Total                          |   | $                           | 238,559 |   |   | $       | 130,438 |   |

----

----

----

|   | · | The first tranche matures in 2017, with the principal payable in fourteen equal semi-annual installments, with the first payment due on July 31, 2010. The interest on the first tranche accrues at a rate of 4.2% per year, payable every three months, with the first payment due on April 30, 2010. The principal and interest payments are linked to the CPI.  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The second tranche has no principal payments until maturity in 2017, when a single balloon payment will become due. The interest on the second tranche accrues at a rate of 5.1% per year, payable every three months, with the first payment due on April 30, 2010.  The principal and interest payments are linked to the CPI. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The third tranche is a revolving loan for terms of three, six or twelve months, at the discretion of 012 Smile, provided that the final maturity of the loan is no later than July 31, 2013. The interest on the third tranche is based on the prime interest plus a spread and accrues at a rate of prime plus 0.75% per year, payable every three months, with the first payment due three months after receipt of the relevant loan amount. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            |   | Payments due by period as of September 30, 2010 (in thousands) |      |
|---------------------------------|--------|----------------------------------------------------------------|-----------|
|                            |   | Total                                                          |      |   | Less than1 year |   |   | 1 – 3 years |   |   | 3-5 years |   |   | More than5 years |   |
| Short-Term Debt:                |   |                                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Gadot - working capital         |   | $                                                              | 96,898    |   |   | $ | 96,898 |   |   |   |   |   |   |   |   |   |   |
| Gadot - revolving credit line   |   | $                                                              | 31,814    |   |   | $ | 31,814 |   |   |   |   |   |   |   |   |   |   |
| Ampal - revolving credit line   |   | $                                                              | 43,736    |   |   | $ | 43,736 |   |   |   |   |   |   |   |   |   |   |
| 012 - revolving credit line (*) |   | $                                                              | 27,285    |   |   | $ | 27,285 |   |   |   |   |   |   |   |   |   |   |
| Other (**)                      |   | $                                                              | 58,659    |   |   | $ | 58,659 |   |   |   |   |   |   |   |   |   |   |
| Long-Term Debt:                 |   |                                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ampal                           |   | $                                                              | 203,038   |   |   |   |   |   |   | $ | 19,777 |   |   | $ | 19,390 |   |   | $ | 163,871 |   |
| Gadot:                          |   |                                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Vessels                         |   | $                                                              | 66,878    |   |   |   |   |   |   | $ | 15,111 |   |   | $ | 6,033 |   |   | $ | 45,734 |   |
| Other                           |   | $                                                              | 60,482    |   |   |   |   |   |   | $ | 14,652 |   |   | $ | 15,832 |   |   | $ | 29,998 |   |
| 012 (*)                         |   | $                                                              | 161,413   |   |   |   |   |   |   | $ | 38,205 |   |   | $ | 38,673 |   |   | $ | 84,535 |   |
| Debentures                      |   | $                                                              | 269,912   |   |   |   |   |   |   | $ | 60,724 |   |   | $ | 96,155 |   |   | $ | 113,033 |   |
| Total                           |   | $                                                              | 1,020,115 |   |   | $ | 258,392 |   |   | $ | 148,469 |   |   | $ | 176,083 |   |   | $ | 437,171 |   |

----

| 1. | A $8.7 million guarantee on indebtedness incurred by Bay Heart in connection with the development of property. There can be no guarantee that Bay Heart will generate sufficient cash to repay its outstanding indebtedness without relying on the Company’s guarantee. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.  | A $27.8 million guarantee of outstanding indebtedness of Gadot. |
|----------|-----------------------------------------------------------------|

| 3. | A $7.9 million guarantee of outstanding indebtedness of 012 Smile. |
|----|--------------------------------------------------------------------|

----

  

----

  

----

  

| Part II       – | OTHER INFORMATION |
|----------------------------------------------------------|-------------------|

  

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

  

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

  

| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
|---------|--------------------------------------------------------------|

  

| Item 3. | Defaults upon Senior Securities |
|---------|---------------------------------|

  

| Item 4. | [Removed and Reserved] |
|---------|------------------------|

  

| Item 5. | Other Information. |
|---------|--------------------|

  

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

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

| 10.1 | Stock Purchase Agreement between Merhav-Ampal Energy Ltd. and Partner Communications Company Ltd., dated October 13, 2010. |
|------|----------------------------------------------------------------------------------------------------------------------------|

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

----

|                   | AMPAL-AMERICAN ISRAEL CORPORATION |
|------------------------|-----------------------------------|
|                   |                              |   |
|                   | By:                               | /s/ Yosef A. Maiman |   |
|                   |                              | Yosef A. Maiman |
|                   |                              | Chairman of the Board |
|                   |                              | President & 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: November 7, 2010 |                              |   |

----

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

| 10.1 | Stock Purchase Agreement between Merhav-Ampal Energy Ltd. and Partner Communications Company Ltd., dated October 13, 2010. |
|------|----------------------------------------------------------------------------------------------------------------------------|

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

----

----