---

---

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




---

FORM 10-Q

|           |                                                                                           
|---------- | ------------------------------------------------------------------------------------------
|(Mark One)
|           |                                                                                           
|x          | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934. 
|           |                                                                                           
|           | For the quarterly period ended September 30, 2008                                         
|           |                                                                                           
|           | OR                                                                                        
|           |                                                                                           
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934.
|           |                                                                                           
|           | For the transition period from _______________________
 to_______________                 

Commission file number 0-538

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

|                                                                                      |                                       
|------------------------------------------------------------------------------------- | --------------------------------------
|New York                                                                              | 13-0435685                            
|                                                                                      |                                       
|(State or Other Jurisdiction of
 Incorporation of Organization)                       | (I.R.S. Employer)Identification Number
|                                                                                      |                                       
|10 Abba Even Street, Ackerstein Tower C, 9th Floor, 
 P.O Box 12215, Herzliya, Israel | 46733                                 
|                                                                                      |                                       
|(Address of Principal Executive
 Offices)                                             | (Zip code)                            
|                                                                                      |                                       
|Registrants Telephone Number, Including Area Code (866) 447-8636                    
|                                                                                     
|                                                                                     
|Former Name, Former Address and Former Fiscal Year, If Changed Since
 Last Report.   

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

Yes  x   No  o

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

Large accelerated filer  o    Accelerated
filer  x    Non-accelerated
filer  o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).

Yes  o   No  x

The
number of shares outstanding of the issuers Class A Stock, its only authorized
common stock, is 58,086,165 (as of October 27, 2008).

---

---



AMPAL-AMERICAN ISRAEL CORPORATION AND
SUBSIDIARIES

Index to Form 10-Q

|         |         |                                                                                               |                                                             |   
|-------- | ------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | --
|         |         |                                                                                               | Page                                                       
|         |         |                                                                                               |                                                            
|Part I   |         | Financial
Information                                                                         |                                                            
|         |         |                                                                                               |                                                            
|         | Item 1. | Financial Statements (unaudited)                                                              |                                                            
|         |         |                                                                                               |                                                            
|         |         | Consolidated Balance Sheets                                                                   | 1-2                                                        
|         |         |                                                                                               |                                                            
|         |         | Consolidated Statements of Operations for the Nine Months Ended
 September 30, 2008 and 2007  | 3                                                          
|         |         |                                                                                               |                                                            
|         |         | Consolidated Statements of Operations for the Three Months Ended
 September 30, 2008 and 2007 | 4                                                          
|         |         |                                                                                               |                                                            
|         |         | Consolidated Statements of Cash Flows                                                         | 5-6                                                        
|         |         |                                                                                               |                                                            
|         |         | Consolidated Statements of Changes in Shareholders Equity                                    | 7-8                                                        
|         |         |                                                                                               |                                                            
|         |         | Notes to the Consolidated Financial Statements                                                | 9-15                                                       
|         |         |                                                                                               |                                                            
|         | Item 2. | Managements Discussion and Analysis of Financial Condition and
 Results of Operations        | 15-24                                                      
|         |         |                                                                                               |                                                            
|         | Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                    | 24                                                         
|         |         |                                                                                               |                                                            
|         | Item 4. | Controls and Procedures                                                                       | 25                                                         
|         |         |                                                                                               |                                                            
|Part II. |         | Other Information                                                                             | 26                                                         
|         |         |                                                                                               |                                                            
|         |         | Item 1.                                                                                       | Legal Proceedings                                           | 26
|         |         |                                                                                               |                                                             |   
|         |         | Item 1A.                                                                                      | Risk Factors                                                | 26
|         |         |                                                                                               |                                                             |   
|         |         | Item 2.                                                                                       | Unregistered Sales of Equity Securities and Use of Proceeds | 26
|         |         |                                                                                               |                                                             |   
|         |         | Item 3.                                                                                       | Defaults upon Senior Securities                             | 26
|         |         |                                                                                               |                                                             |   
|         |         | Item 4.                                                                                       | Submission of Matters to a Vote of Security Holders         | 26
|         |         |                                                                                               |                                                             |   
|         |         | Item 5.                                                                                       | Other Information                                           | 26
|         |         |                                                                                               |                                                             |   
|         |         | Item 6.                                                                                       | Exhibits                                                    | 26

---

---

ITEM 1. FINANCIAL STATEMENTSAMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                        |  |                     |           |                    |   |         | 
|----------------------------------------------------------------------- |  | ------------------- | --------- | ------------------ | - | ------- | 
|ASSETS AS
 OF                                                           |  | September 30,
 2008 |           | December 31,
 2007 |  
|                                                                        |  |                     |           |                    |  
|(U.S.
 Dollars in thousands)                                            |  | (Unaudited)         |           | (Audited)          |  
|                                                                        |  |                     |           |                    |  
|Current assets:                                                         |  |                     |           |                    |   |         | 
|Cash and
 cash equivalents                                              |  | $                   | 96,154    |                    | $ | 44,267  | 
|Marketable
 securities                                                  |  |                     | 62,599    |                    |   | 22,459  | 
|Accounts
 receivable (Net of allowance for doubtful amount $0.5 and $0) |  |                     | 135,096   |                    |   | 106,665 | 
|Deposits                                                                |  |                     | 35,336    |                    |   | 13,737  | 
|Inventories                                                             |  |                     | 40,079    |                    |   | 28,928  | 
|Other assets                                                            |  |                     | 25,000    |                    |   | 23,164  | 
|                                                                        |  |                     |           |                    |   |         | 
|Total current assets                                                    |  |                     | 394,264   |                    |   | 239,220 | 
|Non-current
 assets:                                                    |  |                     |           |                    |   |         | 
|Investments                                                             |  |                     | 377,961   |                    |   | 371,791 | 
|Fixed
 assets, less accumulated depreciation of $9,950 and $3,697       |  |                     | 108,161   |                    |   | 73,007  | 
|Deposits                                                                |  |                     | 29,884    |                    |   | 3,738   | 
|Deferred
 income taxes                                                  |  |                     | 15,388    |                    |   | 11,637  | 
|Other assets                                                            |  |                     | 16,578    |                    |   | 15,557  | 
|Goodwill                                                                |  |                     | 55,825    |                    |   | 50,406  | 
|Intangible
 assets                                                      |  |                     | 15,791    |                    |   | 9,433   | 
|Minority
 interest, net                                                 |  |                     | 9,976     |                    |   | -       | 
|                                                                        |  |                     |           |                    |   |         | 
|Total Non-current assets                                                |  |                     | 629,564   |                    |   | 535,569 | 
|                                                                        |  |                     |           |                    |   |         | 
|                                                                        |  |                     |           |                    |   |         | 
|                                                                        |  | $                   | 1,023,828 |                    | $ | 774,789 | 
|                                                                        |  |                     |           |                    |   |         | 

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

1

---

---

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- | --------- | ------------------ | - | ------- | -
|LIABILITIES
 AND SHAREHOLDERS EQUITY AS OF                                                                                                                        |  | September 30,
 2008 |           | December 31,
 2007 |  
|                                                                                                                                                                   |  |                     |           |                    |  
|(U.S.
 Dollars in thousands, except share amounts)                                                                                                                 |  | (Unaudited)         |           | (Audited)          |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|LIABILITIES                                                                                                                                                        |  |                     |           |                    |   |         |  
|Current liabilities:                                                                                                                                               |  |                     |           |                    |   |         |  
|Notes and
 loans payable and current maturities                                                                                                                    |  | $                   | 175,960   |                    | $ | 136,612 |  
|Accounts
 payable, accrued expenses and others                                                                                                                     |  |                     | 99,964    |                    |   | 73,769  |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Total current liabilities                                                                                                                                          |  |                     | 275,924   |                    |   | 210,381 |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Long term
 liabilities:                                                                                                                                            |  |                     |           |                    |   |         |  
|Notes and
 loans payable                                                                                                                                           |  |                     | 237,046   |                    |   | 187,405 |  
|Debentures                                                                                                                                                         |  |                     | 264,947   |                    |   | 79,350  |  
|Deferred
 income taxes                                                                                                                                             |  |                     | 2,538     |                    |   | 3,275   |  
|Other long
 term liabilities                                                                                                                                       |  |                     | 12,961    |                    |   | 12,760  |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Total long term liabilities                                                                                                                                        |  |                     | 517,492   |                    |   | 282,790 |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Commitments
 and contingencies                                                                                                                                     |  |                     |           |                    |   |         |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Total liabilities                                                                                                                                                  |  |                     | 793,416   |                    |   | 493,171 |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Minority
 interests, net                                                                                                                                           |  |                     | -         |                    |   | 23,206  |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|SHAREHOLDERS EQUITY                                                                                                                                               |  |                     |           |                    |   |         |  
|Class A Stock $1 par value; authorized
 100,000,000 and 100,000,000 shares; issued 63,277,321 and 63,277,321 shares;
 outstanding 57,792,282 and 57,702,532 shares |  |                     | 63,277    |                    |   | 63,277  |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Additional
 paid-in capital                                                                                                                                        |  |                     | 190,525   |                    |   | 189,899 |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Retained
 earnings                                                                                                                                                 |  |                     | 7,485     |                    |   | 47,931  |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Accumulated
 other comprehensive loss                                                                                                                              |  |                     | (3,450    | )                  |   | (14,821 | )
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Treasury
 stock, at cost                                                                                                                                           |  |                     | (27,425   | )                  |   | (27,874 | )
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|Total
 shareholders equity                                                                                                                                        |  |                     | 230,412   |                    |   | 258,412 |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  
|TOTAL
 LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                        |  | $                   | 1,023,828 |                    | $ | 774,789 |  
|                                                                                                                                                                   |  |                     |           |                    |   |         |  

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

2

---

---

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                             |  |             |         |             |   |         |  
|------------------------------------------------------------ |  | ----------- | ------- | ----------- | - | ------- | -
|NINE MONTHS
 ENDED SEPTEMBER 30,                             |  | 2008        |         | 2007        |  
|                                                             |  |             |         |             |  
|(U.S.
 Dollars in thousands, except per share amounts)       |  | (Unaudited) |         | (Unaudited) |  
|                                                             |  |             |         |             |   |         |  
|REVENUES:                                                    |  |             |         |             |   |         |  
|Chemical
 income                                             |  | $           | 419,620 |             | $ | -       |  
|Share in
 losses of affiliates                               |  |             | (1,209  | )           |   | (1,037  | )
|Realized
 gain on investments                                |  |             | 1,162   |             |   | 227     |  
|Realized and
 unrealized loss on marketable securities       |  |             | (90     | )           |   | (195    | )
|Interest
 income                                             |  |             | 3,625   |             |   | 1,694   |  
|Leisure-time
 income                                         |  |             | 2,309   |             |   | 1,816   |  
|Gain from
 change in ownership interest of a subsidiary      |  |             | 490     |             |   | -       |  
|Other income                                                 |  |             | 663     |             |   | 140     |  
|                                                             |  |             |         |             |   |         |  
|Total revenues                                               |  |             | 426,570 |             |   | 2,645   |  
|                                                             |  |             |         |             |   |         |  
|EXPENSES:                                                    |  |             |         |             |   |         |  
|Chemical
 expense - cost of goods sold                       |  |             | 388,395 |             |   | -       |  
|Real estate
 expenses                                        |  |             | 611     |             |   | -       |  
|Loss from
 impairment of investments & real estate           |  |             | -       |             |   | 484     |  
|Interest
 expense                                            |  |             | 33,264  |             |   | 7,756   |  
|Translation
 loss                                            |  |             | 19,466  |             |   | 992     |  
|Marketing
 expense                                           |  |             | 8,171   |             |   | -       |  
|General,
 administrative and other                           |  |             | 27,278  |             |   | 8,054   |  
|                                                             |  |             |         |             |   |         |  
|Total expenses                                               |  |             | 477,185 |             |   | 17,286  |  
|                                                             |  |             |         |             |   |         |  
|Loss before
 income taxes                                    |  |             | (50,615 | )           |   | (14,641 | )
|Provision
 for income taxes (tax benefits)                   |  |             | (710    | )           |   | 2,964   |  
|                                                             |  |             |         |             |   |         |  
|Loss after
 income taxes                                     |  |             | (49,905 | )           |   | (17,605 | )
|Minority
 interests in (losses) profits of subsidiaries, net |  |             | (9,618  | )           |   | 40      |  
|                                                             |  |             |         |             |   |         |  
|Loss from
 continuing operations                             |  |             | (40,287 | )           |   | (17,645 | )
|Discontinued
 operation:                                     |  |             |         |             |   |         |  
|Gain on sale
 of discontinued operations, net of tax         |  |             | -       |             |   | 21,737  |  
|Loss from
 operation of discontinued, net of tax             |  |             | -       |             |   | (417    | )
|                                                             |  |             |         |             |   |         |  
|Net income
 from discontinued operations                     |  |             | -       |             |   | 21,320  |  
|                                                             |  |             |         |             |   |         |  
|Net income
 (loss) for the period                            |  |             | (40,287 | )           |   | 3,675   |  
|                                                             |  |             |         |             |   |         |  
|                                                             |  |             |         |             |   |         |  
|Basic and
 diluted EPS:                                      |  |             |         |             |   |         |  
|Loss from continuing operations                              |  |             | (0.70   | )           |   | (0.36   | )
|Discontinued operations                                      |  |             | -       |             |   | 0.43    |  
|                                                             |  |             |         |             |   |         |  
|Earnings (loss) per share                                    |  | $           | (0.70   | )           | $ | 0.07    |  
|                                                             |  |             |         |             |   |         |  
|                                                             |  |             |         |             |   |         |  
|Shares used in EPS calculation (in
 thousands)               |  |             | 57,722  |             |   | 49,259  |  
|                                                             |  |             |         |             |   |         |  

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

3

---

---

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                 |  |             |         |             |   |        |  
|---------------------------------------------------------------- |  | ----------- | ------- | ----------- | - | ------ | -
|THREE
 MONTHS ENDED SEPTEMBER 30,                                |  | 2008        |         | 2007        |  
|                                                                 |  |             |         |             |  
|(U.S.
 Dollars in thousands, except per share amounts)           |  | (Unaudited) |         | (Unaudited) |  
|                                                                 |  |             |         |             |   |        |  
|REVENUES:                                                        |  |             |         |             |   |        |  
|Chemical
 income                                                 |  | $           | 142,449 |             | $ | -      |  
|Share in
 earnings (losses) of affiliates                        |  |             | (1,787  | )           |   | (695   | )
|Realized
 gain on investments                                    |  |             | 783     |             |   | -      |  
|Realized and
 unrealized gains (losses) on marketable securities |  |             | (229    | )           |   | 50     |  
|Interest
 income                                                 |  |             | 1,469   |             |   | 709    |  
|Leisure-time
 income                                             |  |             | 817     |             |   | 670    |  
|Other income                                                     |  |             | 435     |             |   | 140    |  
|                                                                 |  |             |         |             |   |        |  
|Total revenues                                                   |  |             | 143,937 |             |   | 872    |  
|                                                                 |  |             |         |             |   |        |  
|EXPENSES:                                                        |  |             |         |             |   |        |  
|Chemical
 expense - cost of goods sold                           |  |             | 129,253 |             |   | -      |  
|Real estate
 expenses                                            |  |             | 224     |             |   | -      |  
|Interest
 expense                                                |  |             | 18,333  |             |   | 3,635  |  
|Translation
 loss (gain)                                         |  |             | (5,915  | )           |   | 1,452  |  
|Marketing
 expense                                               |  |             | 2,066   |             |   | -      |  
|General,
 administrative and other                               |  |             | 8,971   |             |   | 3,568  |  
|                                                                 |  |             |         |             |   |        |  
|Total expenses                                                   |  |             | 152,932 |             |   | 8,655  |  
|                                                                 |  |             |         |             |   |        |  
|Loss before
 income taxes                                        |  |             | (8,995  | )           |   | (7,783 | )
|Provision
 for income taxes                                      |  |             | 371     |             |   | 2,068  |  
|                                                                 |  |             |         |             |   |        |  
|Loss after
 income taxes (tax benefits)                          |  |             | (9,366  | )           |   | (9,851 | )
|Minority
 interests in profits of subsidiaries, net              |  |             | 3,276   |             |   | 1      |  
|                                                                 |  |             |         |             |   |        |  
|Loss from
 continuing operations                                 |  |             | (12,642 | )           |   | (9,850 | )
|Discontinued
 operation:                                         |  |             |         |             |   |        |  
|Gain on sale
 of discontinued operations, net of tax             |  |             | -       |             |   | 21,737 |  
|                                                                 |  |             |         |             |   |        |  
|Net income
 from discontinued operations                         |  |             | -       |             |   | 21,737 |  
|                                                                 |  |             |         |             |   |        |  
|Net gain
 (loss) for the period                                  |  |             | (12,642 | )           |   | 11,887 |  
|                                                                 |  |             |         |             |   |        |  
|                                                                 |  |             |         |             |   |        |  
|Basic and
 diluted EPS:                                          |  |             |         |             |   |        |  
|Loss from continuing operations                                  |  |             | (0.22   | )           |   | (0.19  | )
|Discontinued operations                                          |  |             | -       |             |   | 0.41   |  
|                                                                 |  |             |         |             |   |        |  
|Earnings
 (loss) per share                                       |  | $           | (0.22   | )           | $ | 0.22   |  
|                                                                 |  |             |         |             |   |        |  
|                                                                 |  |             |         |             |   |        |  
|Shares used in calculation (in thousands)                        |  |             | 57,742  |             |   | 52,649 |  
|                                                                 |  |             |         |             |   |        |  

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

4

---

---

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

|                                                                                                  |  |             |          |             |   |         |  
|------------------------------------------------------------------------------------------------- |  | ----------- | -------- | ----------- | - | ------- | -
|NINE MONTHS
 ENDED SEPTEMBER 30,                                                                  |  | 2008        |          | 2007        |  
|                                                                                                  |  |             |          |             |  
|(U.S.
 Dollars in thousands)                                                                      |  | (Unaudited) |          | (Unaudited) |  
|                                                                                                  |  |             |          |             |  
|Cash flows
 from operating activities:                                                            |  |             |          |             |   |         |  
|Net income (loss) for the period                                                                  |  | $           | (40,287  | )           | $ | 3,675   |  
|Adjustments to reconcile net (income) loss
 for the period to net cash from operating activities: |  |             |          |             |   |         |  
|Share in losses of affiliates                                                                     |  |             | 1,209    |             |   | 1,037   |  
|Realized and unrealized loss (gain) on
 investments, net                                          |  |             | (1,072   | )           |   | (32     | )
|Gain on sale of discontinued operations,
 net of tax                                              |  |             | -        |             |   | (21,737 | )
|Depreciation and amortization expense                                                             |  |             | 9,263    |             |   | 955     |  
|Income from tenants deposits                                                                      |  |             | -        |             |   | (759    | )
|Non cash stock based compensation                                                                 |  |             | 627      |             |   | 562     |  
|Interest from promissory note                                                                     |  |             | -        |             |   | 815     |  
|Gain from change in ownership of
subsidiary                                                       |  |             | (490     | )           |   | -       |  
|Loss from impairment of investment                                                                |  |             | -        |             |   | 484     |  
|Translation loss                                                                                  |  |             | 19,466   |             |   | 873     |  
|Minority interests in profits of
 subsidiaries, net                                               |  |             | (9,619   | )           |   | (109    | )
|Decrease (increase) in other assets                                                               |  |             | 2,550    |             |   | (3,472  | )
|Increase in accounts payable, accrued
 expenses and others                                        |  |             | 1.065    |             |   | 5,963   |  
|Investments made in trading securities                                                            |  |             | (79      | )           |   | (17,148 | )
|Proceeds from sale of trading securities                                                          |  |             | 5,793    |             |   | 2,323   |  
|Dividends received from affiliates                                                                |  |             | 3,427    |             |   | 120     |  
|                                                                                                  |  |             |          |             |   |         |  
|                                                                                                  |  |             |          |             |   |         |  
|Net cash used in operating activities                                                             |  |             | (8,147   | )           |   | (26,450 | )
|                                                                                                  |  |             |          |             |   |         |  
|                                                                                                  |  |             |          |             |   |         |  
|Cash flows
 from investing activities:                                                            |  |             |          |             |   |         |  
|Deposits, notes and
 loans receivable collected                                                   |  |             | 7,751    |             |   | 1,999   |  
|Deposits, notes and
 loans receivable granted                                                     |  |             | (54,552  | )           |   | -       |  
|Investments made in affiliates                                                                    |  |             | (11,596  | )           |   | (8,225  | )
|Investments made in Gadot                                                                         |  |             | (41,351  | )           |   | -       |  
|Investments made in available for sale
 shares                                                    |  |             | (45,526  | )           |   | -       |  
|Proceeds from sale of investments                                                                 |  |             | 1,986    |             |   | 5,035   |  
|Proceeds from sale of Am-Hal (1), net                                                             |  |             | -        |             |   | 26,393  |  
|Proceeds from sale of fixed assets                                                                |  |             | 3,769    |             |   | -       |  
|Capital improvements                                                                              |  |             | (29,494  | )           |   | (1,123  | )
|                                                                                                  |  |             |          |             |   |         |  
|                                                                                                  |  |             |          |             |   |         |  
|Net cash used in investing activities                                                             |  |             | (169,013 | )           |   | 24,079  |  
|                                                                                                  |  |             |          |             |   |         |  

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

5

---

---

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

|                                                                       |  |             |         |             |   |         |  
|---------------------------------------------------------------------- |  | ----------- | ------- | ----------- | - | ------- | -
|NINE MONTHS
 ENDED SEPTEMBER 30,                                       |  | 2008        |         | 2007        |  
|                                                                       |  |             |         |             |  
|(U.S.
 Dollars in thousands)                                           |  | (Unaudited) |         | (Unaudited) |  
|                                                                       |  |             |         |             |   |         |  
|Cash flows
 from financing activities:                                 |  |             |         |             |   |         |  
|Notes and loans payable received                                       |  | $           | 70,401  |             | $ | 37,231  |  
|Notes and loans payable repaid                                         |  |             | (2,981  | )           |   | (26,698 | )
|Contribution to partnership by minority                                |  |             | -       |             |   | 74      |  
|Proceeds from issuance of debentures                                   |  |             | 166,856 |             |   | -       |  
|Debentures repaid                                                      |  |             | (3,227  | )           |   | -       |  
|Distribution to minority                                               |  |             | (407    | )           |   | -       |  
|Deferred expense relating to issuance of
 debentures                   |  |             | (2,575  | )           |   | -       |  
|Proceeds from exercise of stock option and
 warrants                   |  |             | 290     |             |   | 17,997  |  
|                                                                       |  |             |         |             |   |         |  
|Net cash provided by financing activities                              |  |             | 228,357 |             |   | 28,604  |  
|                                                                       |  |             |         |             |   |         |  
|                                                                       |  |             |         |             |   |         |  
|Effect of exchange rate changes on cash and
 cash equivalents          |  |             | 690     |             |   | 481     |  
|                                                                       |  |             |         |             |   |         |  
|                                                                       |  |             |         |             |   |         |  
|Net increase in cash and cash equivalents                              |  |             | 51,887  |             |   | 26,714  |  
|Cash and cash equivalents at beginning of
 period                      |  |             | 44,267  |             |   | 36,733  |  
|                                                                       |  |             |         |             |   |         |  
|                                                                       |  |             |         |             |   |         |  
|Cash and cash equivalents at end of period                             |  | $           | 96,154  |             | $ | 63,447  |  
|                                                                       |  |             |         |             |   |         |  
|                                                                       |  |             |         |             |   |         |  
|Supplement Disclosure of
 Non-cash Investing and Financing Activities: |  |             |         |             |   |         |  
|Conversion of a convertible
 debenture in subsidiary                   |  |             | 1,257   |             |   | -       |  
|Shares issued for
 promissory note                                     |  |             | -       |             |   | 20,000  |  
|                                                                       |  |             |         |             |   |         |  
|(1)Assets
 and liabilities disposed of in the sale of Am-Hal:          |  |             |         |             |   |         |  
|Current
 assets                                                        |  |             |         |             |   | 2,976   |  
|Fixed assets                                                           |  |             |         |             |   | 69,781  |  
|Debt                                                                   |  |             |         |             |   | (15,995 | )
|Deposits
 from tenants                                                 |  |             |         |             |   | (53,711 | )
|Current
 liabilities                                                   |  |             |         |             |   | (3,596  | )
|Minority
 interest                                                     |  |             |         |             |   | (2,526  | )
|Difference
 from translation                                           |  |             |         |             |   | 52      |  
|Gain on sale
 of Am-Hal                                                |  |             |         |             |   | 29,412  |  
|Proceeds
 from sale of Am-Hal                                          |  |             |         |             |   | 26,393  |  

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

6

---

---

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

(U.S. Dollars in thousands)

Unaudited

|                                                                  |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |         |   |  |         |   |  |         |  
|----------------------------------------------------------------- |  | ------------------- | ------ | ------ |  | ---------------------------- |  | ------------------ | ------- | ------------------------------------------------ | --------------- | ------- | ---------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                                                                  |  | Class A
 stock      |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |         |   |  |        
|                                                                  |  |                     |        |        |  |                              |  |                    |         | Accumulated
 other
 comprehensive
 income (loss) |                 |         |                              |  |         |   | 
|                                                                  |  | Number
 of
 shares* |        | Amount |  | Additional
 paid in
 capital |  | Retained
 earnings |         |                                                  | Treasury
 stock |         | Total
 shareholders
 equity | 
|                                                                  |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |        
|                                                                 
|BALANCE AT JANUARY 1, 2008                                        |  |                     | 63,277 |        |  | 63,277                       |  |                    | 189,899 |                                                  |                 | 47,931  |                              |  | (14,821 | ) |  | (27,874 | ) |  | 258,412 |  
|CHANGES DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2008:          |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |         |   |  |         |   |  |         |  
|Net Loss for the period                                           |  |                     |        |        |  |                              |  |                    |         |                                                  |                 | (40,287 | )                            |  |         |   |  |         |   |  | (40,287 | )
|Unrealized gain from marketable securities                        |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  | (593    | ) |  |         |   |  | (593    | )
|Foreign currency translation adjustments                          |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  | 11,964  |   |  |         |   |  | 11,964  |  
|                                                                  |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |         |   |  |         |   |  |         |  
|Total comprehensive loss                                          |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |         |   |  |         |   |  | (26,795 | )
|Reissuance of 89,750 treasury shares for exercise of stock
option |  |                     |        |        |  |                              |  |                    |         |                                                  |                 | (159    | )                            |  |         |   |  | 449     |   |  | 290     |  
|Compensation expense recognized under SFAS 123R                   |  |                     |        |        |  |                              |  |                    | 626     |                                                  |                 |         |                              |  |         |   |  |         |   |  | 626     |  
|                                                                  |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |         |   |  |         |   |  |         |  
|BALANCE AT SEPTEMBER 30, 2008                                     |  |                     | 63,277 |        |  | 63,277                       |  |                    | 190,525 |                                                  |                 | 7,485   |                              |  | (3,450  | ) |  | (27,425 | ) |  | 230,412 |  
|                                                                  |  |                     |        |        |  |                              |  |                    |         |                                                  |                 |         |                              |  |         |   |  |         |   |  |         |  

* In thousands

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

7

---

---

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

(U.S. Dollars in thousands)

Unaudited

|                                                             |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |   |         |  
|------------------------------------------------------------ |  | ------------------ |  | -------------------------------------------- |  | ---------------------------- | -------- | ------- | ------------------ | ---- | --------------- | ------------------------------------------------ | - | ------- | - | ---------------------------- | - | ------- | -
|                                                             |  | Class A
 stock     |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |  
|                                                             |  |                    |  | Receipt
 on
 account of
 unallocated
 shares |  | Additional
 paid in
 capital |          |         |                    |      |                 | Accumulated
 other
 comprehensive
 income (loss) |   |         |   | Total
 shareholders
 equity |  
|                                                             |  | Number
 of shares* |  | Amount                                       |  |                              | Warrants |         | Retained
 earnings |      | Treasury
 stock |                                                  |  
|                                                             |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |   |         |  
|                                                            
|BALANCE AT
 JANUARY 1, 2007                                  |  | 46,328             |  | 46,328                                       |  | 40,000                       |          | 126,945 |                    | 308  |                 | 40,165                                           |   | (17,059 | ) | (27,874                      | ) | 208,813 |  
|CHANGES DURING
 THE NINE MONTHS ENDED SEPTEMBER 30, 2007:    |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |   |         |  
|Net income for
 the period                                   |  |                    |  |                                              |  |                              |          |         |                    |      |                 | 3,675                                            |   |         |   |                              |   | 3,675   |  
|Foreign currency
 translation adjustments                    |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   | 1,661   |   |                              |   | 1,661   |  
|Sale of foreign
 currency translation adjustment             |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   | 52      |   |                              |   | 52      |  
|                                                             |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |   |         |  
|Total
 comprehensive gain                                    |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |   | 5,341   |  
|Adjustment upon
 adoption of FIN 48                          |  |                    |  |                                              |  |                              |          |         |                    |      |                 | (2,000                                           | ) |         |   |                              |   | (2,000  | )
|Change in
 deferred tax asset relating to adoption of FIN 48 |  |                    |  |                                              |  |                              |          |         |                    |      |                 | 2,000                                            |   |         |   |                              |   | 2,000   |  
|Shares issued for
 investment made                           |  | 8,603              |  | 8,603                                        |  | (40,000                      | )        | 31,397  |                    |      |                 |                                                  |   |         |   |                              |   | -       |  
|Shares issued upon
 conversion of convertible note           |  | 4,476              |  | 4,476                                        |  |                              |          | 16,339  |                    |      |                 |                                                  |   |         |   |                              |   | 20,815  |  
|Compensation
 expense recognized under SFAS 123R             |  |                    |  |                                              |  |                              |          | 562     |                    |      |                 |                                                  |   |         |   |                              |   | 562     |  
|Issuance of
 shares for exercise of Warrants                 |  | 3,579              |  | 3,579                                        |  | 1,353                        |          | 13,373  |                    | (308 | )               |                                                  |   |         |   |                              |   | 17,997  |  
|                                                             |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |   |         |  
|BALANCE AT
 SEPTEMBER 30, 2007                               |  | 62,986             |  | 62,986                                       |  | 1,353                        |          | 188,616 |                    | -    |                 | 43,840                                           |   | (15,346 | ) | (27,874                      | ) | 253,575 |  
|                                                             |  |                    |  |                                              |  |                              |          |         |                    |      |                 |                                                  |   |         |   |                              |   |         |  

* In thousands

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

8

---

---

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

(Unaudited)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | As used in
 these financial statements, the term the Company refers to Ampal-American
 Israel Corporation (Ampal) and its consolidated subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2. | The
 accompanying unaudited condensed consolidated financial statements of the
 Company have been prepared in accordance with generally accepted accounting
 principles (GAAP), in the United States of America, for interim financial
 information and with the instructions to Form 10-Q and Article 10 of
 Regulation S-X. Accordingly, they do not include all of the information and
 notes required by GAAP for complete financial statements. In the opinion of
 management, all adjustments (consisting of normal recurring accruals)
 considered necessary for a fair presentation have been included. Operating
 results for the interim period are not necessarily indicative of the results
 that may be expected for the full year. You should read these interim
 condensed consolidated financial statements in conjunction with the audited
 consolidated financial statements in the Annual Report on Form 10-K for the
 year ended December 31, 2007, filed with the Securities and Exchange
 Commission.                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Reference
 should be made to the Companys consolidated financial statements for the
 year ended December 31, 2007 for a description of the critical accounting
 policies. Also, reference should be made to the notes to the Companys
 December 31, 2007 consolidated financial statements for additional
 information regarding the Companys consolidated financial condition, results
 of operations and cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3. | Recently
 Issued Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | SFAS No.
141R  Business Combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In December 2007, the FASB
 issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
 141R) which replaces SFAS No. 141, Business Combination. SFAS 141R
 establishes the principles and requirements for how an acquirer: (1)
 recognizes and measures in its financial statements the identifiable assets
 acquired, the liabilities assumed, and any noncontrolling interest in the
 acquiree; (2) recognizes and measures the goodwill acquired in the business
 combination or a gain from a bargain purchase; and (3) discloses the business
 combination. This statement applies to all transactions in which an entity
 obtains control of one or more businesses, including transactions that occur
 without the transfer of any type of consideration. SFAS 141R will be
 effective on a prospective basis for all business combinations on or after
 January 1, 2009, with the exception of the accounting for valuation
 allowances on deferred taxes and acquired tax contingencies. Early adoption
 is not allowed. The Company is in the process of evaluating the impact, if
 any, the adoption of SFAS 141R will have on the Companys consolidated
 results of operations or financial position.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | SFAS No. 160  Noncontrolling Interests in Consolidated
 Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In December 2007, the FASB
 issued SFAS No. 160 Noncontrolling Interests in Consolidated Financial
 Statements  an amendment of ARB No. 51 (SFAS 160). SFAS 160
 amends ARB No. 51 and establishes accounting and reporting standards
 that require noncontrolling interests (previously referred to as minority interest)
 to be reported as a component of equity, changes in a parents ownership
 interest while the parent retains its controlling interest be accounted for
 as equity transactions, and upon a loss of control, retained ownership
 interest will be remeasured at fair value, with any gain or loss recognized
 in earnings. SFAS 160 will be effective for the Company commencing
 January 1, 2009, except for the presentation and disclosure
 requirements, which will be applied retrospectively. Early adoption is not
 allowed. The Company is in the process of evaluating the impact, if any, that
 the adoption of SFAS 160 will have on the Companys consolidated results of
 operations or financial position.                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | SFAS No. 161  Disclosures about derivative instruments and
 hedging activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In
 March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
 Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement
 No. 133 (SFAS 161). SFAS 161
 requires enhanced disclosures regarding derivatives and hedging activities, including: (a) the
 manner in which an entity uses derivative instruments; (b) the manner in which derivative
 instruments and related hedged items are accounted for under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
 Hedging Activities; and (c) the effect of derivative
 instruments and related hedged items on an entitys financial position, financial performance,
 and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and
 interim periods
 beginning after November 15, 2008. The Company is in process of evaluating the impact, if any, that the
 adoption of SFAS 161 will have on its financial statements.                                                                                                                                                                                                    

9

---

---

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | SFAS No. 162  The hierarchy of generally accepted accounting principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In May 2008, the FASB
 issued Financial Accounting
 Standard (FAS) No. 162, The Hierarchy of Generally Accepted Accounting
 Principles. The statement is intended to improve financial reporting by identifying a
 consistent hierarchy for selecting accounting principles to be used in preparing financial statements
 that are prepared in conformance with generally accepted accounting principles. Unlike
 Statement on Auditing Standards SAS No. 69, The Meaning of Present in
 Conformity With GAAP, FAS No. 162 is directed to the entity rather than the auditor. The
 statement is effective 60 days following the SECs approval of the
 Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411,
 The Meaning of Present Fairly in Conformity with GAAP, and is not expected to have any
 impact on the Companys results of operations, financial condition or liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | SFAS No. 142-3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In April 2008, the
 FASB issued FASB Staff Position (the FSP)FAS No. 142-3,which amends the factors that must be
 considered in developing renewal or extension assumptions used to determine the useful
 life over which to amortize the cost of a recognized intangible asset under FAS No. 142,
 Goodwill and Other Intangible
 Assets. The FSP requires an entity to consider its own assumptions about renewal or
 extension of the term of the arrangement, consistent with its expected use of the asset, and is an
 attempt to improve consistency between the useful life of a recognized intangible asset under FAS
 No. 142 and the period of expected cash flows used to measure the fair value of
 the asset under FAS No. 141,
 Business Combinations. The FSP is effective for fiscal years beginning after December 15, 2008,
 and the guidance for determining the useful life of a recognized intangible asset
 must be applied prospectively to intangible assets acquired after the effective date.
 The FSP is not expected to have a significant impact on the Companys results of operations,
 financial condition
 or liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | SFAS No. 157-3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In October 2008, the FASB
 issued FASB Staff Position SFAS No. 157-3, Determining the Fair Value of a
 Financial Asset When the Market for That Asset Is Not Active, (SFAS No.
 157-3). This position clarifies the application of FASB No. 157 in a market
 that is not active and provides an example to illustrate key considerations
 in determining the fair value of a financial asset when the market for that
 financial asset is not active. This position was effective for us on
 September 30, 2008. The adoption of this position did not have an effect on
 our financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4. | Cash and
 cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Cash
 equivalents are short-term, highly liquid investments (bank accounts and bank
 deposits) that have original maturity dates of three months or less and are
 readily convertible into cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Cash equal
 to $2.7 million has been placed as a compensating balance for various loans
 provided to the Company and would therefore be unavailable if the Company
 wished to pledge them in order to provide an additional source of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|5. | Inventories
  mainly chemicals and other materials intended for sale, are valued at the
 lower of cost or market. Cost is determined based on the moving average
 basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6. | East
 Mediterranean Gas Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On December
 1, 2005, the Company, through Merhav Ampal Energy, Ltd. (MAE), a
 wholly-owned subsidiary of the Company, acquired a 2% interest in East
 Mediterranean Gas Co. S.A.E., an Egyptian joint stock company (EMG), from
 Merhav M.N.F. Ltd. (Merhav). The Company paid $30.0 million in cash,
 representing the fair value of the interest purchased at the time this
 transaction closed. The Companys investment in EMG is the primary cost
 method investment included in non-current investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On August 1,
 2006, the Company acquired the beneficial ownership of 4.6% of the
 outstanding shares of EMGs capital stock from Merhav. The transaction was
 accounted for as a transfer of assets between entities under common control,
 which resulted in Merhav transferring the investment in EMG to Ampal at
 carrying value. Due to the nature of Merhavs operations, this entity would
 be treated as an investment company under GAAP, and as such, the carrying
 value of the investment in EMG would equal fair value. On this basis, the
 4.6% investment in EMG was transferred to Ampal at carrying value, which also
 equals fair value. The cost of the investment was $100.0 million, of which,
 $50.0 million was paid in cash and the balance was paid in 10,248,002 shares
 of the Company Class A Stock (based on the Companys share price of $4.88 per
 share) that was accounted for at a fair value of $50.0 million. The issuance
 of the shares of Class A Stock received the approval of the shareholders of
 the Company as required by the marketplace rules of the NASDAQ Global Market.
 As a result of this transaction, the Company beneficially owned 6.6% of the
 total outstanding shares of EMG. Through August 2008, the cost of the
 investment could have been adjusted downward had Merhav sold any of its
 remaining shares of EMG to a third-party purchaser at a price per share lower
 than the price per share paid by the Company pursuant to the agreement.
 Additionally, pursuant to the agreement, the Company was granted an option
 for a period of up to two years to have the right to acquire up to an
 additional 5.9% of the total outstanding shares of EMG stock.

10

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Yosef A.
 Maiman, the Chairman, President and CEO of the Company and a member of the
 controlling shareholder group of the Company, is the sole owner of Merhav.
 Because of the foregoing relationships, a special committee of the Board of
 Directors composed of the Companys independent directors, who also
 constitute all of the members of the Companys Audit Committee, negotiated
 and approved the transaction. Houlihan Lokey Howard & Zukin Financial
 Advisors, Inc., which was retained as financial advisor to the special
 committee, delivered a fairness opinion to the special committee regarding
 the transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | On August
 22, 2006, EMG called for additional capital from all of its shareholders. As
 a result, the Company paid an additional $2.7 million in order to maintain
 its pro rata beneficial interest in EMG.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | On December
 21, 2006, the Company acquired the beneficial ownership of an additional 5.9%
 of the outstanding shares of EMGs capital stock pursuant to an option
 granted by Merhav in August 2006. The transaction was accounted for as a
 transfer of assets between entities under common control, which resulted in
 Merhav transferring the investment in EMG to Ampal at carrying value. Due to
 the nature of Merhavs operations, this entity would be treated as an
 investment company under GAAP, and as such, the carrying value of the
 investment in EMG would equal fair value. On this basis, the 5.9% investment
 in EMG was transferred to Ampal at carrying value, which also equals fair
 value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The cost of
 the additional investment was approximately $128.3 million, of which
 approximately $68.3 million was paid in cash, approximately $40 million was
 paid in 8,602,151 shares of the Companys Class A Stock and the balance was
 satisfied by the issuance of a promissory note in the principal amount of $20
 million (the Convertible Promissory Note), which, at the option of Merhav,
 was payable in cash, additional shares of the Company Class A Stock (based on
 a price per share of $4.65), or a combination thereof. As permitted under the
 stock purchase agreement, Merhav assigned its right to the 8,602,151 Shares
 to De Majorca Holdings Limited as part of Merhavs restructuring process. The
 Convertible Promissory Note bore interest at 6 months LIBOR (5.375%) and
 matured on September 20, 2007. Ampal could have pre-paid the Convertible
 Promissory Note at any time in whole or in part. The maximum number of shares
 that could have been issued in this transaction (including accrued interest
 payable through the maturity date on the Convertible Promissory Note) is
 13,078,540 shares of Class A Stock. As a result of this transaction, Ampal
 beneficially owns 12.5% of the total outstanding shares of EMG. The issuance
 of the 8,602,151 shares and the shares underlying the Convertible Promissory
 Note received the approval of the shareholders of the Company on February 7,
 2007, as required by the marketplace rules of the NASDAQ Global Market. Due
 to the agreement of the controlling shareholder group to vote in favor of the
 issuance of these shares to Merhav as of the closing date of the EMG
 transaction (which ensured that the proposal would be adopted by the
 requisite shareholders vote on February 7, 2007), the Company, as of December
 31, 2006, classified for accounting purposes the sale of these shares as part
 of the exchange with Merhav on December 21, 2006 and recognized the
 approximately $40 million with shareholders equity as Receipt on account of
 unallocated shares.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Yosef A.
 Maiman, the Chairman, President and CEO of the Company and a member of the
 controlling shareholder group of the Company, is the sole owner of Merhav.
 Because of the foregoing relationships, a special committee of the Board of
 Directors composed of the Companys independent directors, who also
 constitute all of the members of the Companys Audit Committee, negotiated
 and approved the transaction. Houlihan Lokey Howard & Zukin Financial
 Advisors, Inc., which was retained as financial advisor to the special
 committee, advised the special committee on these transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | On June 4,
 2007, EMG called for additional capital from all of its shareholders. As a
 result, the Company paid an additional $5.8 million in order to maintain its
 pro rata beneficial interest in EMG.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | On November
 29, 2007, Ampal and Israel Infrastracture Fund (IIF), leading a group of
 institutional investors (the Investors), purchased a 4.3% interest in EMG,
 through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership (the
 Joint Venture), from Merhav for a purchase price of approximately $95.4
 million, using funds provided by the Investors. In addition to the Joint
 Ventures purchase from Merhav, Ampal contributed into the Joint Venture an
 additional 4.3% interest in EMG already held by Ampal. The Joint Venture now
 holds a total of 8.6% of the outstanding shares of EMG. Ampals contribution
 was valued at the same price per EMG share as the Joint Ventures purchase.
 This amount is equivalent to the purchase price (on a per share basis) paid
 by Ampal for its December 2006 purchase of EMG shares from Merhav, which was
 accounted for as a transfer of assets between entities under common control,
 which resulted in Merhav transferring the investment in EMG to Ampal at
 carrying value. Due to the nature of Merhav s operations, Merhav would be
 treated as an investment company under GAAP, and as such, the carrying value
 of the investment in EMG would equal fair value. On this basis, the said
 investment in EMG was transferred to Ampal at carrying value, which also
 equals fair value. Based on the terms stipulated in the shareholders
 agreement of the general partner of the Joint Venture, Ampal and Israel
 Infrastructure G.P. Ltd. have equal rights in governing the affairs of the
 Joint Venture. However, in certain events and under certain conditions,
 matters relating to decisions on how to vote the EMG shares held by the Joint
 Venture shall be decidedby the directors of the general partner of the Joint
 Venture appointed by Ampal. As such, Ampal has consolidated the resultsof the Joint Venture in its financial
 statements.                                                                                                                                      

11

---

---

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The
 Companys Financial Statements reflect a 16.8% interest in shares of EMG,
 with 8.2% held directly and 8.6% held through the Joint Venture (of which
 Ampal owns 50%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|7. | Acquisition
 of Gadot                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company
 completed the three step acquisition of Gadot Chemical Tankers and Terminals
 Ltd. (Gadot) during the third quarter of 2008. The acquisition was the
 result of (1) a $91.2 million acquisition of 65% in December 2007, (2) a
 $17.7 million acquisition of 15% in June 2008 and (3) a $23.3 million
 acquisition of the remaining 20% in August 2008. The Companys results of
 operations have consolidated Gadot since the December transaction and
 minority interests have been accounted for on their ownership basis since
 each respective acquisition date.                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | On December
 3, 2007, Ampal completed its acquisition of 65.5% of the control and
 ownership (63.66% on a fully diluted basis) of Gadot. The total consideration
 including direct transaction expenses was $91.2 million. The cash
 consideration was financed with Ampals own resources and with borrowings in
 the amount of $60.7 million.                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Gadot and
 its group of companies are an Israeli chemical distribution organization.
 Gadot ships, stores, and distributes liquid chemicals, oils, and a large
 variety of materials to the local industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The
 acquisition was accounted for by the purchase method. The results
 of operations of Gadot were included in the consolidated financial statements
 of Ampal commencing November 30, 2007. The consideration for the acquisition
 was attributed to net assets on the basis of fair value of assets acquired
 and liabilities assumed, based on an appraisal performed by management, which
 included a number of factors, including the assistance of independent
 appraisers. The following table summarizes the final fair values of the
 assets acquired and liabilities assumed, with reference to Gadot balance
 sheet data as of November 30, 2007:

|                                                 |  |                           |          |  
|------------------------------------------------ |  | ------------------------- | -------- | -
|                                                 |  | U.S. Dollars in thousands |         
|                                                 |  |                           |         
|Current
 assets                                  |  | $                         | 166,365  |  
|Investments
 and other non-current assets        |  |                           | 31,145   |  
|Fixed assets                                     |  |                           | 74,430   |  
|Identifiable
 intangible assets                  |  |                           | 9,503    |  
|Goodwill                                         |  |                           | 50,406   |  
|                                                 |  |                           |          |  
|Total assets
 acquired                           |  |                           | 331,849  |  
|                                                 |  |                           |          |  
|Current
 liabilities                             |  |                           | (94,703  | )
|Long-term
 liabilities, including deferred taxes |  |                           | (124,523 | )
|Minority
 interest                               |  |                           | (21,422  | )
|                                                 |  |                           |          |  
|Total
 liabilities assumed                       |  |                           | (240,648 | )
|                                                 |  |                           |          |  
|Net assets
 acquired                             |  | $                         | 91,201   |  
|                                                 |  |                           |          |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under
 the purchase method of accounting, the total consideration of $91.2 million allocated to Gadots
 identifiable tangible and intangible assets and liabilities assumed based on
 their estimated fair values as of the date of the completion of the
 transaction.                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | On June 3,
 2008, Ampal completed its acquisition of an additional 14.98% of the
 ownership (14.71% on a fully diluted basis) of Gadot. The total consideration,
 including direct transaction expenses, was $17.7 million. The cash consideration
 was financed with Ampals own resources and with borrowings in the amount of
 $11.4 million.                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The
 acquisition was accounted for by the purchase method. The
 consideration for the acquisition was attributed to net assets on the basis
 of fair value of assets acquired and liabilities assumed, based on an
 appraisal performed by management, which included a number of factors,
 including the assistance of independent appraisers.                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The
 identified tangible and intangible assets acquired amounted to approximately
 $3.9 million and $3.9 million, respectively. The main assets included are
 ships and tankers and option to purchase and lease ships, of approximately
 $2.6 million and $2.6 million, respectively, to be amortized over an
 estimated useful life of 12 and 5 years, respectively.                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | On August
 12, 2008, Ampal completed its acquisition of an additional 20.6% of the
 ownership and 66.76% of the convertible debentures of
 Gadot and holds 100% of the ownership of Gadot (99.99% on a fully diluted
 basis). The total consideration, including direct transaction expenses, was
 $23.3 million. The cash consideration was financed with Ampals own resources
 and with borrowings in the amount of $15.4 million.

12

---

---

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The
 acquisition was accounted for by the purchase method. The
 consideration for the acquisition was attributed to net assets on the basis
 of fair value of assets acquired and liabilities assumed, based on an
 appraisal performed by management, which included a number of factors,
 including the assistance of independent appraisers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The
 identified tangible and intangible assets acquired amounted to approximately
 $6.1 million and $3 million, respectively. The main assets included are ships
 and tankers and option to purchase and lease ships, of approximately $4.4
 million and $2.7 million, respectively, to be amortized over an estimated
 useful life of 12 and 5 years, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|8. | Option
 Agreement for Sugarcane Ethanol Project in Colombia                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On May 29,
 2008, Ampal loaned Merhav $10 million in addition to the currently
 outstanding $10 million that were loaned on December 25, 2007, to fund the
 Colombia ethanol project required for growing sugarcane and the construction
 of an ethanol production facility. The additional loan was made pursuant to
 the existing promissory note, dated as of December 25, 2007, by Merhav in
 favor of Ampal (the Promissory Note). The loan bears interest at an annual
 rate equal to LIBOR plus 2.25%, and will be convertible into all or a portion
 of the equity interest purchased pursuant to an option granted by Merhav to
 Ampal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|9. | Fair value
 measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On September 2006,
 the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157),which defines fair
 value, establishes a framework for measuring fair value in generally accepted accounting principles
 and expands disclosures about fair-value measurements. The Company adopted SFAS 157
 effective January 1, 2008for all financial assets and liabilities and any other
 assets and liabilities that are recognized or disclosed at fair value on a recurring basis.
 Although the
 adoption of SFAS 157 did not materially impact the Companys financial condition, results
 of operations or cash flows, the Company is required to provide additional disclosures within
 its condensed consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | SFAS 157 defines fair value as the
 price that would be received to sell an asset or paid to transfer the liability (an exit price)
 in an orderly transaction between market participants and also establishes a fair value hierarchy
 which requires an entity
 to maximize the use of observable inputs and minimize the use of unobservable inputs
 when measuring fair value. The fair value hierarchy within SFAS 157 distinguishes between three
 levels of inputs that may be utilized when measuring fair value including level 1 inputs (using
 quoted prices in active markets for identical assets or liabilities), level 2 inputs (using
 inputs other than
 level 1 prices such as quoted prices for similar assets and liabilities in active markets or inputs
 that are observable for the asset or liability) and level 3 inputs (unobservable inputs
 supported by little or no market activity based on the companys own assumptions used to measure
 assets and liabilities). A financial
 assets or liabilitys classification within the
 above hierarchy is determined
 based on the lowest level input that is significant to the fair value measurement.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company also adopted
 SFAS 159, The Fair Value Option for Financial Assets and Financial
 Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure
 many financial assets and financial liabilities at fair value. Unrealized
 gains and losses on items for which the fair value option has been elected
 are reported in earnings. SFAS 159 is effective for fiscal years after
 November 15, 2007. The Company did not elect to apply the fair value option
 available under SFAS 159 for any of its eligible instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Financial assets and liabilities measured at fair
 value on a recurring basis as at September 30, 2008 consisted of the following (in
 thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                                        |  |         |        |         |   |       |   |   |          |  
|------------------------------------------------------- |  | ------- | ------ | ------- | - | ----- | - | - | -------- | -
|Fair Value Measurements as at September 30, 2008 Using: | 
|                                                       
|                                                        |  | Level 1 |        | Level 2 |   | Total |  
|                                                        |  |         |        |         |   |       |  
|Trading securities *                                    |  | $       | 6,374  |         | $ | -     |   | $ | 6,374    |  
|Available for sale
 securities *                        |  |         | 56,226 |         |   | -     |   |   | 56,226   |  
|Derivative liability**                                  |  |         | -      |         |   | (1.4  | ) |   | (1.4     | )
|                                                        |  |         |        |         |   |       |   |   |          |  
|Total                                                   |  |         | 62,600 |         |   | (1.4  | ) |   | 62,598.6 |  
|                                                        |  |         |        |         |   |       |   |   |          |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marketable securities that
 are classified in level 1 consist of available-for-sale and trading
 securities for which
 market prices are readily available, marketable securities that are
 classified in level 2 consist of trading securities for which there are quoted prices in active
 brokers markets. The fair value of derivative assets are determined based on
 inputs that can be derived from information available in publicly quoted markets.
 Unrealized gains or losses from available-for-sale securities are recorded in accumulated other
 comprehensive (loss) income.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | * The trading securities and available for sale securities are mainly
 traded debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ** Out of
 which approximately $0.9 million is attributable to the swap agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

13

---

---

|    |                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Segment
 information presented below, results primarily from operations in Israel.                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                          
|    | SFAS 131 Disclosure about
 Segments of an Enterprise and Related Information establishes annual and
 interim reporting standards for an enterprises operating segments and
 related disclosures about its products, services, geographic areas and major
 customers. Segment information presented below results primarily from
 operations in Israel.
|    |                                                                                                                                                                                                                                                                                                                                                          
|    | The chemical segment
 consists of the investment in Gadot, a wholly owned subsidiary of Ampal,
 which operates in the distribution and marketing of liquid chemicals for raw
 materials used in the chemical industry.                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                          
|    | The energy segment
 consists of the investment in EMG, an Egyptian joint stock company, which
 holds the right to supply and supplies natural gas to Israel through an
 underwater pipeline from Egypt to Israel.                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                          
|    | The
 leisure-time segment consists of an affiliate Country Club Hod Hasharon Sport
 Center and Kfar Saba, the Companys 51%-owned subsidiary, each located in
 Israel.                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                          
|    | The finance
 segment consists of all other activities which are not part of the above
 segments.                                                                                                                                                                                                                                                         

|                                 |  |      |           |      |   |          |  
|-------------------------------- |  | ---- | --------- | ---- | - | -------- | -
|NINE MONTHS
 ENDED SEPTEMBER 30, |  | 2008 |           | 2007 |  
|                                 |  |      |           |      |  
|(Dollars in
 thousands)          |  |      |           |      |   |          |  
|                                 |  |      |           |      |   |          |  
|Revenues:                        |  |      |           |      |   |          |  
|Chemicals                        |  | $    | 420,110   |      | $ | -        |  
|Finance                          |  |      | 5,360     |      |   | 1,905    |  
|Leisure-time                     |  |      | 2,309     |      |   | 1,816    |  
|Intercompany
 adjustments        |  |      | -         |      |   | (39      | )
|                                 |  |      |           |      |   |          |  
|                                 |  |      | 427,779   |      |   | 3,682    |  
|Share in
 losses of affiliates   |  |      | (1,209    | )    |   | (1,037   | )
|                                 |  |      |           |      |   |          |  
|Total
 consolidated revenues     |  | $    | 426,570   |      | $ | 2,645    |  
|                                 |  |      |           |      |   |          |  
|                                 |  |      |           |      |   |          |  
|Pre-tax
 Operating Gain (loss):  |  |      |           |      |   |          |  
|Chemicals                        |  | $    | (259      | )    | $ | -        |  
|Finance                          |  |      | (49,088   | )    |   | (13,707  | )
|Leisure-time                     |  |      | (59       | )    |   | 103      |  
|                                 |  |      |           |      |   |          |  
|                                 |  |      | (49,406   | )    |   | (13,604  | )
|Share in
 losses of affiliates   |  |      | (1,209    | )    |   | (1,037   | )
|                                 |  |      |           |      |   |          |  
|Total
 consolidated pretax loss  |  | $    | (50,615   | )    | $ | (14,641  | )
|                                 |  |      |           |      |   |          |  
|                                 |  |      |           |      |   |          |  
|Total
 Assets:                   |  |      |           |      |   |          |  
|Chemicals                        |  | $    | 421,328   |      | $ | -        |  
|Finance                          |  |      | 598,441   |      |   | 386,084  |  
|Energy                           |  |      | 361,323   |      |   | 265,680  |  
|Leisure-Time                     |  |      | 3,265     |      |   | 3,395    |  
|Minority
 interest, net          |  |      | 9,976     |      |   | -        |  
|Intercompany
 adjustments        |  |      | (370,505  | )    |   | (286,787 | )
|                                 |  |      |           |      |   |          |  
|Total
 consolidated assets       |  | $    | 1,023,828 |      | $ | 368,372  |  
|                                 |  |      |           |      |   |          |  

|    |                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Corporate
 office expense is principally applicable to the financing operations and has
 been charged to that segment above. Revenues and pre-tax operating gain above
 exclude equity in earnings of affiliates.     
|    |                                                                                                                                                                                                                       
|11. | The
 following table summarizes securities that were not included in the
 calculations of diluted earnings per Class A share for the periods ended
 September 30, 2008 and 2007 because such shares are anti-dilutive.

|                                          |  |                                  |  |       |  |  | 
|----------------------------------------- |  | -------------------------------- |  | ----- |  |  | 
|(Shares in
 thousands)                    |  | Nine Months Ended
 September 30, | 
|                                          |  |                                  | 
|                                          |  | 2008                             |  | 2007  | 
|                                          |  |                                  |  |       | 
|                                         
|Shares
 resulting from Options and Rights |  | 2,341                            |  | 2,435 | 

14

---

---

|    |                    
|--- | -------------------
|12. | LEGAL
 PROCEEDINGS:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 1, 2002, Galha (1960) Ltd.
(Galha) filed a suit against the Company and other parties, including
directors of Paradise Industries Ltd. (Paradise) appointed by the Company, in
the Tel Aviv District Court, in the amount of NIS 11,560,000 ($3 million). Galha claimed
that the Company, which was a shareholder of Paradise, and another shareholder of
Paradise, misused funds that were received by Paradise from an insurance company for the
purpose of reconstructing an industrial building owned by Galha and used by Paradise which
burnt down. Paradise is currently involved in liquidation proceedings. Ampal issued a
guarantee in favor of Galha for a benefit of a defendant for the payment of an amount of
up to approximately NIS 4,381,000 ($1,281,000) if a final judgment against the Company
will be given.                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | On May 26,
 2003, the Company and the directors of Paradise appointed by the Company
 filed a third party claim against Arieh Israeli Insurance Company Ltd.
 (Arieh) in the Tel Aviv District Court claiming that, to the extent the
 court decides that the directors of Paradise appointed by the Company will
 have to pay any amounts to Galha, Arieh will pay such amounts on behalf of
 the directors in accordance with the Directors and Officers insurance policy
 that the Company had at that time with Arieh. Arieh filed a statement of
 defense and stated that the policy does not cover the claim. At this stage,
 the Company cannot estimate the impact this claim will have on it. In March
 2008, the dispute was submitted to mediation by order of the court, with the
 consent of the parties.                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ITEM 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
 OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | AMPAL-AMERICAN
 ISRAEL CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | CRITICAL
 ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The
 preparation of Ampal  American Israel Corporations (Ampal, and
 collectively with its subsidiaries, the Company) consolidated financial
 statements is in conformity with accounting principles generally accepted in
 the United States (GAAP) which requires management to make estimates and
 assumptions in certain circumstances that affect amounts reported in the
 accompanying consolidated financial statements and related footnotes. Actual
 results may differ from these estimates. To facilitate the understanding of
 Ampals business activities, described below are certain Ampal accounting
 policies that are relatively more important to the portrayal of its financial
 condition and results of operations and that require managements subjective
 judgments. Ampal bases its judgments on its experience and various other
 assumptions that it believes to be reasonable under the circumstances. Please
 refer to Note 1 to Ampals consolidated financial statements included in the
 Companys Annual Report on Form 10-K for the fiscal year ended December 31,
 2007 for a summary of all of Ampals significant accounting policies.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | No
 significant updates have occurred since our last annual report on form 10-K,
 except for a revenue recognition policy resulting from the recent acquisition
 of Gadot Chemical Tankers and Terminals Ltd. (Gadot).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Revenue
 Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Chemical
 income is measured at the fair value of the consideration received or the
 consideration that the Company is entitled to receive, taking into account trade
 discounts and/or bulk discounts granted by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Chemical
 income is recognized in accordance with SAB 104 provisions, namely when (a)
 persuasive evidence of an arrangement exists, (b) the sales price is fixed or
 determinable, (c) collectibility is probable, (d) no material obligations
 remain under the selling agreements, and (e) product delivery has occurred or
 the service has been rendered. Revenue for services is recognized over the
 period during which those services are preformed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Revenue from
 sale of goods is recognized when all the following conditions have been
 satisfied: (a) the significant risks and rewards of ownership of the goods
 have been transferred to the buyer; (b) the Company retains neither
 continuing managerial involvement to the degree usually associated with
 ownership nor effective control over the goods sold; (c) the amount of
 revenue can be measured reliably; (d) it is probable that the economic
 benefits associated with the transaction will flow to the Company; and (e)
 the costs incurred or to be incurred in respect of the transaction can be
 measured reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Revenue from
 the provision of services is recognized by reference to the stage of
 completion of the transaction at the balance sheet date, and only when the
 stage of completion of the transaction at the balance sheet date can be
 measured reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Recently
 Issued Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | SFAS No. 141R  Business Combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In December 2007, the FASB
 issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
 141R) which replaces SFAS No. 141, Business Combination. SFAS 141R
 establishes the principles and requirements for how an acquirer: (1)
 recognizes and measures in its financial statements the identifiable assets acquired,
 the liabilities assumed, and any noncontrolling interest in the acquiree; (2)
 recognizes and measures the goodwill acquired in the business combination or
 a gain from a bargain purchase; and (3) discloses the business combination.
 This statement applies to all transactions in which an entity obtains control
 of one or more businesses, including transactions that occur without the
 transfer of any type of consideration. SFAS 141R will be effective on a
 prospective basis for all business combinations on or after January 1,
 2009, with the exception of the accounting for valuation allowances on
 deferred taxes and acquired tax contingencies. Early adoption is not allowed.
 The Company is in the process of evaluating the impact, if any, the adoption
 of SFAS 141R will have on the Companys consolidated results of operations or
 financial position.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | SFAS No. 160  Noncontrolling Interests in Consolidated
 Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In December 2007, the FASB
 issued SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB No. 51 (SFAS 160). SFAS 160
 amends ARB No. 51 and establishes accounting and reporting standards
 that require noncontrolling interests (previously referred to as minority
 interest) to be reported as a component of equity, changes in a parents
 ownership interest while the parent retains its controlling interest be
 accounted for as equity transactions, and upon a loss of control, retained
 ownership interest will be remeasured at fair value, with any gain or loss
 recognized in earnings. SFAS 160 will be effective for the Company commencing
 January 1, 2009, except for the presentation and disclosure
 requirements, which will be applied retrospectively. Early adoption is not
 allowed. The Company is in the process of evaluating the impact, if any, that
 the adoption of SFAS 160 will have on the Companys consolidated results of
 operations or financial position.                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | SFAS No. 161  Disclosures about derivative instruments and
 hedging activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In
 March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
 Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement
 No. 133 (SFAS 161).SFAS 161 requires enhanced disclosures regarding derivatives
 and hedging activities, including: (a) the manner in which an entity uses derivative instruments; (b) the manner in
 which derivative instruments and related hedged items are accounted for under Statement of Financial
 Accounting Standards No. 133, Accounting for Derivative Instruments and
 Hedging Activities; and (c) the effect of derivative
 instruments and related hedged items on an entitys financial position, financial performance,
 and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and
 interim periods beginning after November 15, 2008. The Company is in process of evaluating the impact, if any, that the
 adoption of SFAS 161 will have on its financial statements.                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | SFAS No. 162 - The hierarchy of generally accepted accounting principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In May 2008, the FASB
 issued Financial Accounting
 Standard (FAS) No. 162, The Hierarchy of Generally Accepted Accounting
 Principles. The statement is intended to improve financial reporting by identifying a
 consistent hierarchy for selecting accounting principles to be used in preparing financial statements
 that are prepared in conformance with generally accepted accounting principles. Unlike
 Statement on Auditing Standards (SAS No. 69, The Meaning of Present in
 Conformity With GAAP, FAS No. 162 is directed to the entity rather than the auditor. The
 statement is effective 60 days following the SECs approval of the
 Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411,
 The Meaning of Present Fairly in Conformity with GAAP, and is not expected to have any
 impact on the Companys results of operations, financial condition or liquidity.                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | SFAS No. 142-3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In April 2008, the
 FASB issued FASB Staff Position (the FSP) FAS
 No. 142-3,
 which amends the factors that must be considered in developing renewal
 or extension
 assumptions used to determine the useful life over which to amortize the cost of a
 recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets.
 The FSP requires an entity to consider its own assumptions about renewal or extension of the term
 of the arrangement, consistent with its expected use of the asset, and is an attempt to
 improve consistency between the useful life of a recognized intangible asset under FAS
 No. 142 and the period of expected cash flows used to measure the fair value of
 the asset under FAS No. 141,
 Business Combinations. The FSP is effective for fiscal years beginning after December 15, 2008,
 and the guidance for determining the useful life of a recognized intangible asset
 must be applied prospectively to intangible assets acquired after the effective date.
 The FSP is not expected to have a significant impact on the Companys results of operations,
 financial condition
 or liquidity.                                                            

16

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 157-3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In October 2008, the FASB
 issued FASB Staff Position SFAS No. 157-3, Determining the Fair Value of a
 Financial Asset When the Market for That Asset Is Not Active, (SFAS No.
 157-3). This position clarifies the application of FASB No. 157 in a market
 that is not active and provides an example to illustrate key considerations
 in determining the fair value of a financial asset when the market for that
 financial asset is not active. This position was effective for us on
 September 30, 2008. The adoption of this position did not have an effect on
 our financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Results of
 Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Changes in
 pricing and demand for chemicals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The overall demand for chemical products, especially commodity
 chemicals, is highly dependent on general economic conditions.
 In the past few months, both the prices and demand for chemicals have been
 volatile. The economic indicators from the United States and Europe have
 started to negatively influence demand. The economic slow down is already
 being felt in the construction sector, mainly in the United States, which had
 enjoyed significant growth in recent years. The construction sector is a
 large consumer of chemical products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Chemical
 Carriers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In recent years, the increased demand for chemicals led to an increase
 in shipping demand in the chemical carrier sector. Fuel prices significantly
 impact the profitability of this segment in Gadots activity. The rapid
 increase in oil prices during the first nine months of 2008 had a significant
 negative influence on the gross profit of Gadot. Any future reduction in oil
 prices may contribute positively to Gadots gross profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | On April 29, 2008, Gadot announced that an agreement had been signed
 for the winding-up of Chem-Tankers C.V., a limited partnership registered in
 the Netherlands, which was engaged in the maritime shipping of chemicals in
 bulk (hereafter  the Partnership). The Partnership was established
 pursuant to an agreement signed on October 1, 2005 between Gadot Yam Chemical
 Shipping Ltd., a wholly owned and controlled subsidiary of Gadot, and a
 foreign company registered in Cyprus (hereafter  the Partners). The
 agreement sets forth the manner in which the Partnership will wind down,
 including provisions relating to the settling of accounts between the
 Partners, the distribution of the operating routes, the ships, and the fixed
 assets of the Partnership and the payment of winding-up expenses. Following
 the winding-up of the Partnership, the Company shall continue to operate the
 operating routes that it operated prior to the establishment of the
 Partnership in 2005, viz., the North Europe-Mediterranean Sea route and the
 North America-Mediterranean Sea route.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Nine months ended September 30, 2008 compared to nine
 months ended September 30, 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Company
 recorded a consolidated net loss of $40.3 million for the nine months ended
 September 30, 2008 compared to a net gain of $3.7 million for the
 corresponding period in 2007. The increase in loss is primarily attributable
 to an increase in interest expense, translation loss and increase in the
 Israeli consumer price index that the Companys debentures are linked to for
 the nine months ended September 30, 2008 as compared to the corresponding
 period in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In the nine
 months ended September 30, 2008, the Company included the results of
 operations of Gadot, which was purchased in three parts, on December 3, 2007,
 May 29, 2008 and August 6, 2008. Below is data from Gadot results of
 operations (in millions of dollar):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |                                                    |  |  |   |  |   |      | 
| | -------------------------------------------------- |  |  | - |  | - | ---- | 
| | Chemical
 income                                   |  |  |  |  | $ | 420  | 
| |                                                    |  |  |   |  |   |      | 
| | Chemical
 expense                                  |  |  |  |  | $ | 388  | 
| |                                                    |  |  |   |  |   |      | 
| | Marketing
 expense                                 |  |  |  |  | $ | 8.2  | 
| |                                                    |  |  |   |  |   |      | 
| | Other
 expense (mainly general and administrative) |  |  |  |  | $ | 16.8 | 
| |                                                    |  |  |   |  |   |      | 
| | Interest
 expense                                  |  |  |  |  | $ | 7.6  | 
| |                                                    |  |  |   |  |   |      | 
| | Net loss                                           |  |  |  |  | $ | 3.6  | 

| |                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the nine
 months ended September 30, 2008, the Company recorded $8.2 million of
 marketing expense, as compared to recording no marketing expense in the
 corresponding period in 2007. These expenses are attributable to Gadot, whose
 results of operation was consolidated for the first time in 2008. Marketing
 expense is composed mainly of salary and commission expenses.

17

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the nine
 months ended September 30, 2008, the Company recorded a $27.3 million of
 general, administrative and other expense, as compared to $8.1 million in the
 corresponding period in 2007. The increase is mainly due to consolidating
 Gadot for the first time in 2008.                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In the nine months ended
 September 30, 2008, the Company recorded a $9.6 million of Minority interests
 share in losses of subsidiaries, net, as compared to none in the
 corresponding period in 2007. These losses are mainly attributable to
 translation losses in the notes issued to the partners in the Joint Venture,
 resulting from valuate of the New Israeli Shekel compared to the U.S. Dollar.                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In the nine
 months ended September 30, 2008, the Company recorded a $33.3 million
 interest expense, as compared to a $7.8 million interest expense for the
 corresponding period in 2007. The increase in interest expense relates to the
 increase in notes payable which the Company received to finance the purchase
 of Gadot, issuance of the Companys Series B debentures, increase in the
 Israeli consumer price index and the interest expense of Gadot which the
 Company included for the first time in 2008.                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In the nine
 months ended September 30, 2008, the Company recorded a $19.5 million
 translation loss, as compared to a $1.0 million translation loss for the
 corresponding period in 2007. The increase in translation loss is related to
 a change in the valuation of the New Israeli Shekel as compared to the U.S.
 Dollar, an increase of 11% in the nine month ended September 30, 2008 as
 compared to a decrease of 0.5% for the corresponding period in 2007.                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Share in
 losses of affiliates increased to a net loss of $1.2 million for the nine
 months ended September 30, 2008, compared to a net loss of $1.0 million for
 the corresponding period in 2007.                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In the nine
 month period ended September 30, 2008, the Company recorded $0.5 million gain
 from issuance of shares by Gadot in 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In the nine
 month period ended September 30, 2008, the Company recorded $1.2 million of
 net realized gain on investments, compared to $0.2 million of net realized
 gain in the same period in 2007. The net gain recorded in 2008 was primarily
 attributable to the sale of Hod Hasharon Limited Partnership ($0.8 million
 gain), the sale of certain assets by PSINet Europe, one of the holdings of
 one of Ampals investee companies, Telecom Partners (TP) ($0.3 million
 gain) and the sale of certain assets by FIMI Opportunity Fund L.P (FIMI)
 ($0.1 million gain).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | On August 5,
 2007, the Company completed the sale of Am-Hal Ltd (Am-Hal). Am-Hal was a
 wholly owned subsidiary which owned and operated a chain of senior citizens
 facilities located in Israel. Accordingly, Am-Hal has been reported as a
 discontinued operation for the nine months ended September 30, 2007.                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Results of
 operations analyzed by segments for nine months ended September 30:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                |  |                             |         |      |   |        |  
|------------------------------- |  | --------------------------- | ------- | ---- | - | ------ | -
|                                |  | 2008                        |         | 2007 |  
|                                |  |                             |         |      |  
|                                |  | (U.S. Dollars in thousands) |        
|                                |  |                             |        
|                                |  |                             |         |      |   |        |  
|Revenues:                       |  |                             |         |      |   |        |  
|                                |  |                             |         |      |   |        |  
|Chemicals                       |  | $                           | 420,110 |      | $ | -      |  
|Finance                         |  |                             | 5,360   |      |   | 1,905  |  
|Leisure-time                    |  |                             | 2,309   |      |   | 1,816  |  
|Intercompany
 adjustments       |  |                             | -       |      |   | (39    | )
|                                |  |                             |         |      |   |        |  
|                                |  |                             | 427,779 |      |   | 3,682  |  
|Equity in
 losses of affiliates |  |                             | (1,209  | )    |   | (1,037 | )
|                                |  |                             |         |      |   |        |  
|                                |  |                             |         |      |   |        |  
|Total                           |  | $                           | 426,570 |      | $ | 2,645  |  
|                                |  |                             |         |      |   |        |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 chemicals income relates solely to Gadot and derives from the following
 activities: sales of a wide range of liquid chemicals, providing maritime
 shipping services of chemicals by ships and providing other services which
 include logistics and storage services for chemicals.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In the nine
 months ended September 30, 2008, the Company recorded $426.6 million in
 revenue which was comprised of $420.1 million in the Chemicals segment, due
 to the acquisition of Gadot, $5.4 million in the Finance segment, $2.3
 million in the Leisure-Time segment and a $1.2 million loss in share in
 earnings of affiliates, as compared to $2.6 million for the same period in
 2007, which was comprised of $1.9 million in the Finance segment, $1.8
 million in the Leisure-time segment and a $1.0 million loss in share in
 earnings of affiliates. The increase in the Finance segment revenue is primarily
 related to the increase in realized and unrealized gains on marketable
 securities and interest income from deposits.

18

---

---

|             |  |                             |         |      |   |        | 
|------------ |  | --------------------------- | ------- | ---- | - | ------ | 
|             |  | 2008                        |         | 2007 |  
|             |  |                             |         |      |  
|             |  | (U.S. Dollars in thousands) |        
|             |  |                             |        
|             |  |                             |         |      |   |        | 
|Expenses:    |  |                             |         |      |   |        | 
|             |  |                             |         |      |   |        | 
|Chemicals    |  | $                           | 420,369 |      | $ | -      | 
|Finance      |  |                             | 54,448  |      |   | 15,573 | 
|Leisure-time |  |                             | 2,368   |      |   | 1,713  | 
|             |  |                             |         |      |   |        | 
|             |  |                             |         |      |   |        | 
|Total        |  | $                           | 477,185 |      | $ | 17,286 | 
|             |  |                             |         |      |   |        | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the nine
 months ended September 30, 2008, the Company recorded $477.2 million in
 expenses which was comprised of $420.4 million in the Chemicals segment, due
 to the acquisition of Gadot, $54.4 million in the Finance segment and $2.4
 million in the Leisure-time segment, as compared to $17.3 million expense for
 the same period in 2007 which was comprised of $15.6 million in the Finance
 segment and $1.7 million in the Leisure-Time segment. The increase in
 expenses in the Finance segment is primarily attributable to the $19.5
 million translation loss which was recorded due to the change in the valuate
 of the New Israeli Shekel as compared to the U.S. dollar, increase in the
 Israeli consumer price index, the interest expense of Gadot which the Company
 included for the first time in 2008 and to the increase in interest expense
 related to the notes payable which the Company received to finance the
 purchase of Gadot.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Three months
 ended September 30, 2008 compared to three months ended September 30, 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Company
 recorded a consolidated net loss of $12.6 million for the three months ended
 September 30, 2008 compared to a net gain of $11.9 million for the same
 period in 2007. The increase in loss is primarily attributable to an increase
 in interest expense, translation loss and an increase in Israeli consumer
 price index that the Companys debentures are linked to for the three months
 ended September 30, 2008 as compared to the same period in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In the three
 months ended September 30, 2008 the Company included the results of
 operations from Gadot, which was purchased in three parts, on December 3,
 2007, June 3, 2008 and August 12, 2008. Below is data from Gadot results of
 operations (in millions of dollar):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |                                                    |  |  |   |  |   |     | 
| | -------------------------------------------------- |  |  | - |  | - | --- | 
| | Chemical
 income                                   |  |  |  |  | $ | 143 | 
| |                                                    |  |  |   |  |   |     | 
| | Chemical
 expense                                  |  |  |  |  | $ | 124 | 
| |                                                    |  |  |   |  |   |     | 
| | Marketing
 expense                                 |  |  |  |  | $ | 2.1 | 
| |                                                    |  |  |   |  |   |     | 
| | Other
 expense (mainly general and administrative) |  |  |  |  | $ | 6   | 
| |                                                    |  |  |   |  |   |     | 
| | Interest
 expense                                  |  |  |  |  | $ | 4   | 
| |                                                    |  |  |   |  |   |     | 
| | Net income                                         |  |  |  |  | $ | 2   | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the three
 months ended September 30, 2008, the Company recorded a $2.1 million of
 marketing expense, as compared to recording no marketing expense in the
 corresponding period in 2007. These expenses are attributable to Gadot, whose
 results of operation were consolidated for the first time in 2008. Marketing
 expense is composed mainly of salary and commission expenses.                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In the three
 months ended September 30, 2008, the Company recorded a $9.0 million of
 general, administrative and other expense, as compared to $3.6 million in the
 corresponding period in 2007. The increase is mainly due to consolidating
 Gadot for the first time in 2008.                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In the three
 months ended September 30, 2008, the Company recorded a $3.3 million of
 Minority interests share in gain of subsidiaries, net, as compared to none in
 the corresponding period in 2007. These gains are mainly attributable
 to translation losses in the notes issued to the partners in the Joint
 Venture, resulting from valuate of the New Israeli Shekel compared to the
 U.S. Dollar.                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In the three
 months ended September 30, 2008, the Company recorded a $18.3 million interest
 expense, as compared to a $3.6 million interest expense for the same period
 in 2007. The increase in interest expense relates to the increase in notes
 payable which the Company received to finance the purchase of Gadot, issuance
 of the Companys Series B debentures, increase in the Israeli consumer price
 index and the interest expense of Gadot, which the Company included for the
 first time in 2008.

19

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the three
 months ended September 30, 2008, the Company recorded a $5.9 million
 translation gain, as compared to a $1.5 million translation loss for the same
 period in 2007. The net gain is related to a change in the valuation of the
 New Israeli Shekel as compared to the U.S. Dollar which influences net gain
 the debentures Series B that were issued in 2008, an increase of 2% in the
 three months ended September 30, 2008 as compared to a decrease of 5.5% for
 the corresponding period in 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In the three
 months ended September 30, 2008, the Company recorded $1.8 million loss of
 share in earnings of affiliates, compared to a net loss of $0.7 million for
 the same period in 2007. The increase in loss is primarily attributable to
 the losses from Gadots affiliates which were included for the
 first time in 2008.                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In the three
 months ended September 30, 2008, the Company recorded $0.8 million of
 realized gain on investments, compared to $0.2 million of net realized gain
 in the same period in 2007.                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | On August 5,
 2007, the Company completed the sale of Am-Hal. Am-Hal was a wholly owned
 subsidiary which owned and operated a chain of senior citizens facilities
 located in Israel. Accordingly, Am-Hal has been reported as a discontinued
 operation for the three months ended September 30, 2007.                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Results of
 operations analyzed by segments for three months ended September 30:                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                               |  |                             |         |      |   |       |  
|------------------------------ |  | --------------------------- | ------- | ---- | - | ----- | -
|                               |  | 2008                        |         | 2007 |  
|                               |  |                             |         |      |  
|                               |  | (U.S. Dollars in thousands) |        
|                               |  |                             |        
|                               |  |                             |         |      |   |       |  
|Revenues:                      |  |                             |         |      |   |       |  
|                               |  |                             |         |      |   |       |  
|Chemicals                      |  | $                           | 142,597 |      | $ | -     |  
|Finance                        |  |                             | 2,310   |      |   | 902   |  
|Leisure-time                   |  |                             | 817     |      |   | 670   |  
|Intercompany
 adjustments      |  |                             | -       |      |   | (5    | )
|                               |  |                             |         |      |   |       |  
|                               |  |                             | 145,724 |      |   | 1,567 |  
|Share in
 losses of affiliates |  |                             | (1,787  | )    |   | (695  | )
|                               |  |                             |         |      |   |       |  
|                               |  |                             |         |      |   |       |  
|Total                          |  | $                           | 143,937 |      | $ | 872   |  
|                               |  |                             |         |      |   |       |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the three
 months ended September 30, 2008, the Company recorded $143.9 million in
 revenue which was comprised of $142.6 million in the Chemicals segment, due
 to the acquisition of Gadot, $2.3 million in the Finance segment, $0.8
 million in the Leisure-time segment and $1.8 million loss in share in
 earnings of affiliates, as compared to $0.9 million for the corresponding
 period in 2007, which was comprised of $0.9 million in the Finance segment,
 $0.7 million in the Leisure-time segment and $0.7 million loss in share in
 earnings of affiliates. The increase in the Finance segment revenue is primarily
 related to the increase in interest on deposits.

|             |  |                             |         |      |   |       | 
|------------ |  | --------------------------- | ------- | ---- | - | ----- | 
|             |  | 2008                        |         | 2007 |  
|             |  |                             |         |      |  
|             |  | (U.S. Dollars in thousands) |        
|             |  |                             |        
|             |  |                             |         |      |   |       | 
|Expenses:    |  |                             |         |      |   |       | 
|             |  |                             |         |      |   |       | 
|Chemicals    |  | $                           | 140,519 |      | $ | -     | 
|Finance      |  |                             | 11,550  |      |   | 7,976 | 
|Leisure-time |  |                             | 863     |      |   | 679   | 
|             |  |                             |         |      |   |       | 
|             |  |                             |         |      |   |       | 
|Total        |  | $                           | 152,932 |      | $ | 8,655 | 
|             |  |                             |         |      |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the three
 months ended September 30, 2008, the Company recorded $152.9 million in
 expenses which was comprised of $140.5 million in the Chemicals segment, due
 to the acquisition of Gadot, $11.5 million in the Finance segment and $0.9
 million in the Leisure-time segment, as compared to $8.7 million expense for
 the same period in 2007 which was comprised of $8.0 million in the Finance
 segment and $0.7 million in the Leisure-Time segment. The increase in
 expenses in the Finance segment is primarily attributable to the increase in
 the Israeli consumer price index, the interest expense of Gadot, which the
 Company included for the first time in 2008, the increase in interest expense
 related to the notes payable which the Company received to finance the
 purchase of Gadot and to the interest on the debenture Series B.

20

---

---

| | Income
taxes
| | ------------

| | In
the nine month and three month periods ended September 30, 2008 the Company reported a
minor tax benefit from income taxes as compared to approximately $3 million and $2
million in the corresponding periods in 2007. The Company has recorded a valuation
allowance with respect to deferred tax assets resulting from net operating losses in
Israel and in the US and the income taxes resulting from the Gadot acquisition. The
Companys other taxes result from earnings of other subsidiaries in Israel, the US
and other foreign jurisdictions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Liquidity
 and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Cash
 Flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | On September
 30, 2008, cash, cash equivalents and marketable securities were $158.8
 million, as compared with $66.7 million at December 31, 2007. The increase is
 attributable to the issuance of the Companys Series B debentures and partly
 offset by purchasing an additional interest in Gadot.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | As of
 September 30, 2008, the Company had $62.6 million of marketable securities as
 compared to $22.5 million as of December 31, 2007. The increase is
 attributable to the purchasing of marketable securities with part of the
 proceeds from the issuance of the Companys Series B debentures and due to
 consolidating Gadot for the first time in 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Company may also
 receive cash from operations and investing activities and amounts available
 under credit facilities, as described below. The Company believes that these
 sources are sufficient to fund the current requirements of operations,
 capital expenditures, investing activities and other financial commitments of
 the Company for the next 12 months. However, to the extent that contingencies
 and payment obligations described below and in other parts of this Report
 require the Company to make unanticipated payments, the Company would need to
 further utilize these sources of cash. The Company may need to draw upon its
 other sources of cash, which may include additional borrowing, refinancing of
 its existing indebtedness or liquidating other assets, the value of which may
 also decline.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In addition, Ampals
 interest in Gadot has been pledged and cash equal to $2.7 million has been
 placed as a compensating balance for various loans provided to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Cash
 flows from operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Net cash
 used in operating activities totaled approximately $8.1 million for the nine
 months ended September 30, 2008, compared to approximately $26.5 million used
 in operating activities for the corresponding period in 2007. The decrease in
 cash used is primarily attributable to the dividend received from Gadots
 affiliates in the nine months ended September 30, 2008, and the decrease in
 the investments made in trading securities.                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Cash flows from investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Net cash
 used in investing activities totaled approximately $169.0 million for the
 nine months ended September 30, 2008, compared to approximately $24.1 million
 provided by investing activities for the corresponding period in 2007. The
 increase in cash used in investing activities is primarily attributable to
 the payment for ships purchased by Gadot, to the additional investment in
 Gadot, Bay Heart and Global Wind Energy, investment in securities which were
 classified as available for sale, increase in deposits granted and decrease
 in the proceeds from the sale of investments.                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Cash flows
 from financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Net cash
 provided by financing activities was approximately $228.4 million for the
 nine months ended September 30, 2008, compared to approximately $28.6 million
 of net cash provided by financing activities for the corresponding period in
 2007. The increase in cash provided is primarily attributable to the issuance
 of the Companys Series B debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In the nine
 months ended September 30, 2008, the Company received $70.4 million notes
 payable and paid down its existing notes payable in the amount of $3.0
 million, as compared to receiving approximately $37.2 million of net notes
 payable and paying down $26.7 million notes payable for the corresponding
 period in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Company
 received $0.3 million from exercise of stock options for the nine months
 ended September 30, 2008, as compared to receiving $18.0 million for the
 corresponding period in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In the nine
 months ended September 30, 2008, the Company made additional investments in
 the form of a $8.3 million loan to Bay Heart and $2.4 million capital
 contribution to Global Wind Energy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In the nine
 months ended September 30, 2008, the Company disposed of the following
 investments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | On March
 2008, the Company received $0.3 million from the sale of certain assets by
 PSINet Europe, one of the holdings of TP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | On February
 29, 2008, the Company sold certain assets of FIMI for $0.1 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | On August 7,
 2008, the Company signed an agreement for the sale of its 50% holdings of
 Country Club Hod Hasharon Sport Center for a consideration of $2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

21

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Notes issued
 to institutional investors in Israel, the convertible note issued to Merhav
 and other loans payable pursuant to bank borrowings are either in U.S.
 Dollars, linked to the Consumer Price Index in Israel or in unlinked New
 Israeli Shekels, with interest rates varying depending upon their linkage
 provision and mature between 2008-2019.                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The Company
 finances its general operations and other financial commitments through bank
 loans from Bank Hapoalim, Union Bank of Israel Ltd. (UBI) and Israel
 Discount Bank Ltd (IDB). As of September 30, 2008, the outstanding
 indebtedness under these bank loans totaled $144.3 million and the loans
 mature through 2008-2019.                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On April 6,
 2008, the Company entered into a trust agreement with Clal Finance Trustees
 2007 Ltd. pursuant to which the Company issued notes (Series B) for trading
 on the Tel Aviv Stock Exchange (the TASE) pursuant to a prospectus
 published with the Israel Securities Authority in the principal aggregate
 amount of NIS 577,823,000 (approximately $165.7 million) with an interest
 rate of 6.6%, which is linked to the Israeli consumer price index. The notes
 shall rank pari passu with our unsecured indebtedness. The notes will be
 repaid in five equal annual installments commencing on January 31, 2012, and
 the interest will be paid semi-annually.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The
 following additional terms apply to the notes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ampal may
 issue additional notes without limitation.                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Ampal has a
 four year grace period for making principal payments on the notes, which
 payments will not begin until 2012.                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | The notes
 are partially secured by a cash deposit in a bank account in the name of the
 trustee in an amount equal to four years of interest payments on the
 debentures, such deposit to be returned to the Company in eight installments
 beginning on the first interest payment date and continuing on each
 subsequent interest payment date thereafter.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ampal funded
 the Gadot transaction with a combination of available cash and the proceeds
 of a new credit facility, dated November 29, 2007 between Merhav Ampal
 Energy, Ltd. (MAE) and IDB, for approximately $60.7 million which amount
 was increased on June 3, 2008, on the same terms and conditions, by
 approximately $11.3 million and also was increased on September 23, 2008, on
 the same terms and conditions, by approximately $15.4 million (the Credit
 Facility). The Credit Facility is divided into two equal loans of
 approximately $43.7 million. The first loan is a revolving loan that has no
 principal payments and may be repaid in full or in part on December 31 of
 each year until 2019, when a single balloon payment will become due. The
 second loan also matures in 2019, has no principal payments for the first 1.5
 years, and shall thereafter be paid in equal installments over the remaining
 9.5 years of the term. Interest on both loans accrues at a floating rate
 equal to LIBOR plus a percentage spread and is payable on a current basis.
 Ampal has guaranteed all the obligations of MAE under the Credit Facility and
 Ampals interest in Gadot has also been pledged to IDB as a security for the
 Credit Facility. Yosef Maiman has agreed to maintain ownership of a certain
 amount of the Companys Class A Common Stock. The Credit Facility contains
 customary affirmative and negative covenants for credit facilities of this
 type.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | As of
 September 30, 2008, the Company has a $8.3 million loan with UBI that bears
 interest at the rate of LIBOR plus 2% to be repaid in six annual installments
 commencing on April 2, 2008 and various other loans with UBI in the aggregate
 amount of $8.5 million bearing interest at rates between 4.3% and 4.8% to be
 repaid until 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | As of
 September 30, 2008, the Company has a $22.5 million loan with Bank Hapoalim
 as part of a $27 million dollar loan facility. The funds borrowed under the
 loan facility are due in nine annual installments commencing on December 31,
 2007 and bear interest at an annual rate of LIBOR plus 2%. The related loan
 agreement contains financial and other covenants including an acceleration of
 payment upon the occurrence of certain changes in the ownership of the
 Companys Class A Stock. As of September 30, 2008, the Company is in
 compliance with its debt covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | As of
 September 30, 2008, the Company has a $107.1 million loan from institutional
 investors who own 50% of Merhav Ampal Energy Holdings, LP. The loan is not
 linked to the Consumer Price Index in Israel, bears no interest and is
 repayable upon agreement by both parties, but with a minimum term of one
 year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | A short term
 loan from Bank Hapoalim in the amount of $3.5 million a bear interest of 7.1%
 and is to be repaid by December 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | On November
 20, 2006, the Company entered into a trust agreement with Hermetic Trust
 (1975) Ltd. pursuant to which the Company issued Series A debentures to
 institutional investors in Israel in the principal aggregate amount of NIS
 250 million (approximately $58 million) with an interest rate of 5.75%, which
 is linked to the Israeli consumer price index. The notes shall rank pari
 passu with our unsecured indebtedness. The notes will be repaid in five equal
 annual installments commencing on November 20, 2011, and the interest will be
 paid semi-annually. As of September 30, 2008, the outstanding debt under the
 notes amounts to $78.6 million, due to the change in valuation of the New
 Israeli Shekel as compared to the U.S. dollar. The Company deposited an
 amount of $10,207,000 with Hermetic Trust (1975) Ltd. to secure the first
 three years worth of payments of interest on the debentures. As of September
 30, 2008, the outstanding amount of the deposit was $6.4 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

22

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 29,
 2008 the Company completed its Series B debenture offering in Israel. Ampal
 accepted subscriptions in the amount of NIS 577.8 million (approximately
 $165.7 million) for its Series B debentures. The debentures are linked to the
 Israeli consumer price index and will carry an annual interest rate of 6.6%.
 The notes shall rank pari passu with our unsecured indebtedness. The notes
 will be repaid in five equal annual installments commencing on January 31,
 2012, and the interest will be paid semi-annually. As of September 30, 2008,
 the outstanding debt under the notes amounts to $176.1 million, due to the
 change in valuation of the New Israeli Shekel as compared to the U.S. dollar.
 The Company deposited an amount of $44,551,773 with Clal Finance Trusties
 2007 Ltd. in accordance with a trust agreement dated April 6, 2008 to secure
 the first three years worth of payments of interest on the debentures. As of
 September 30, 2008, the outstanding amount of the deposit was $39 million
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Midroog
 Ltd., an affiliate of Moodys Investors Service, initially rated the
 Companys Series A debentures as A3. On March 27, 2008 Midroog raised the
 rating of the Series A debentures to A2 and rated the Series B debentures as
 A2. On September 15, 2008 Midroog reduced the rating to A3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Other long
 term borrowings in the amount of $0.2 million are linked to the Consumer
 Price Index in Israel, mature between 2008 and 2010 and bear annual interest
 of 5.7%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | As of
 September 30, 2008, Gadot had $0.2 million outstanding under its convertible
 debentures. The debentures are linked to the Consumer Price Index in Israel,
 bear annual interest at the rate of 6.5%, and are repayable in two equal
 annual installments on December 5, 2008 and 2009. The debentures are
 convertible into ordinary shares of Gadot until December 5, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | As of
 September 30, 2008, Gadot had $13.3 million outstanding under its other
 debentures. These debentures are not convertible into shares and are
 repayable in five equal annual installments on September 15 of each of
 the years 2008 through 2012. The outstanding balance of the principal of the
 debentures bears annual interest at the rate of 5.3%. The principal and
 interest of the debentures are linked to the Consumer Price Index in Israel
 and the interest is payable in semi-annual installments on March 15 and
 September 15 of each of the years 2006 through 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | As of
 September 30, 2008, Gadot has short term loans payable in the amount of
 $106.3 million and long term loans payable in the amount of $55.3 million.
 The various short term loans payable are either unlinked or linked to the
 Euro and bear interest at rates between 5.73% to 6.09%. The various long term
 loans payable are either unlinked, linked to the Consumer Price Index in
 Israel or linked to the Euro and bear interest at rates between 4.82% to
 6.9%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The weighted
 average interest rates and the balances of these short-term borrowings at
 September 30, 2008 and December 31, 2007 were 5.3% on $154.2 million and 6.3%
 on $136.6 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | As of
 September 30, 2008, the Company had issued guarantees on certain outstanding
 loans to its investees and subsidiaries in the aggregate principal amount of
 $44.3 million. These include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |    |                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | A $5.8
 million guarantee on indebtedness incurred by Bay Heart in connection with
 the development of property. Bay Heart recorded losses in 2008 as a result of
 decreased rental revenues. There can be no guarantee that Bay Heart will
 become profitable or that it will generate sufficient cash to repay its
 outstanding indebtedness without relying on the Companys guarantee.
| |    |                                                                                                                                                                                                                                                                                                                                                                                           
| | 2. | A $1.3
 million guarantee in connection with the law suit of Galha (1960) Ltd. (Galha) if a final judgment is
 entered against the Company in the Tel Aviv District Court.                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                           
| | 3. | A $37.2
 million guarantee of outstanding indebtedness of Gadot.                                                                                                                                                                                                                                                                                                                          

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Off-Balance Sheet Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Other than
 the foreign currency contracts specified below, the Company has no
 off-balance sheet arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | FOREIGN
 CURRENCY CONTRACTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The
 Companys derivative financial instruments consist of foreign currency
 forward exchange contracts to purchase or sell U.S. dollars. These contracts
 are utilized by the Company, from time to time, to manage risk exposure to
 movements in foreign exchange rates. None of these contracts have been
 designated as hedging instruments. These contracts are recognized as assets
 or liabilities on the balance sheet at their fair value, which is the
 estimated amount at which they could be settled, based on market prices or
 dealer quotes, where available, or based on pricing models. Changes in fair
 value are recognized currently in earnings.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | As of
 September 30, 2008, the Company had open foreign currency forward exchange
 contracts to purchase U.S. Dollars and sell Euros in the amount of $2.6
 million, contracts to purchase Euros and sell U.S. Dollars in the amount of
 $4.3 million and contracts to sell New Israeli Shekel and buy U.S. Dollars in
 the amount of $4 million.                                                                                                                                                                                                                                                                                                                      

23

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | FORWARD
 LOOKING STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | This
 Quarterly Report (including but not limited to factors discussed above, in
 the Managements Discussion and Analysis of Financial Condition and Results
 of Operations, as well as those discussed elsewhere in this Quarterly Report
 on Form 10-Q) includes forward-looking statements (within the meaning of
 Section 27A of the Securities Act of 1993 and Section 21E of the Securities
 Exchange Act of 1934) and information relating to the Company that are based
 on the beliefs of management of the Company as well as assumptions made by
 and information currently available to the management of the Company. When
 used in this Quarterly Report, the words anticipate, believe, estimate,
 expect, intend, plan, and similar expressions, as they relate to the
 Company or the management of the Company, identify forward-looking statements.
 Such statements reflect the current views of the Company with respect to
 future events or future financial performance of the Company, the outcome of
 which is subject to certain risks and other factors which could cause actual
 results to differ materially from those anticipated by the forward-looking
 statements, including among others, the economic and political conditions in
 Israel and the Middle East and the global business and economic conditions in
 the different sectors and markets where the Companys portfolio companies
 operate.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Should any
 of those risks or uncertainties materialize, or should underlying assumptions
 prove incorrect, actual results or outcomes may vary from those described
 herein as anticipated, believed, estimated, expected, intended or planned.
 These risks and uncertainties may include, but are not limited to, those
 described in this report, in Part II, Item 1A. Risk Factors and elsewhere in
 our Annual Report on Form 10-K for the year ended December 31, 2007, and
 those described from time to time in our future reports filed with the
 Securities and Exchange Commission. The Company assumes no obligation to
 update or revise any forward-looking statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISKS AND SENSITIVITY ANALYSIS

The Company is
exposed to various market risks, including changes in interest rates, foreign
currency exchange rates, index rates and equity price changes. The following
analysis presents the hypothetical loss in earnings, cash flows and fair values
of the financial instruments which were held by the Company at September 30,
2008, and are sensitive to the above market risks.

During the
nine months ended September 30, 2008, there have been no material changes in
the market risk exposures facing the Company as compared to those the Company
faced in the fiscal year ended December 31, 2007.

Interest Rate Risks

On May 15,
2008, the Company entered into a swap agreement with respect to its Series B
debentures, in the principal amount of $165.7 million, due 2016. As a result of
these agreements the Company is currently paying an effective interest rate of
LIBOR plus 5.12% on $43.9 million of these debentures, as compared to the
original 6.6% fixed rate which is linked to the Israeli consumer price index.

As of
September 30, 2008, the value of the currency swap resulted in a $0.8 million
decrease in other assets and a corresponding increase in interest expense.

As of
September 30, 2008, the Company had financial assets totaling $146.9 million
and financial liabilities totaling $678.0 million. For fixed rate financial
instruments, interest rate changes affect the fair market value but do not
impact earnings or cash flows. Conversely, for variable rate financial
instruments, interest rate changes generally do not affect the fair market
value but do impact future earnings and cash flows, assuming other factors are
held constant.

As of
September 30, 2008, the Company did not have fixed rate financial assets and
had variable rate financial assets of $146.9 million. A ten percent decrease in
interest rates would not increase the unrealized fair value of the fixed rate
assets.

As of
September 30, 2008, the Company had fixed rate debt of $372.5 million and
variable rate debt of $305.4 million. A ten percent decrease in interest rates
would increase the unrealized fair value of the financial debts in the form of
the fixed rate debt by approximately $7.4 million.

The net
decrease in earnings and cash flows for the next year resulting from a ten
percent interest rate increase would be approximately $1.5 million, holding
other variables constant.

24

---

---

Foreign Currency Exchange Rate Sensitivity Analysis

The Companys
exchange rate exposure on its financial instruments results from its investments
and ongoing operations. As of September 30, 2008, the Company had open foreign
exchange forward contracts to purchase U.S. Dollars and sell Euros in the
amount of $3.9 million, contracts to purchase Euros and sell Pounds in the
amount of $0.3 million and contracts to sell U.S. Dollars and buy Euros in the
amount of $1.3 million. Holding other variables constant, if there were a ten
percent devaluation of each of the foreign currency, the Companys cumulative
translation loss reflected in the Companys accumulated other comprehensive
loss would increase by $5.9 million, and regarding the statements of
operations, a ten percent devaluation of the U.S. Dollar exchange rate would
result in a net increase in earnings and cash flows of $31.2 million, and a ten
percent devaluation of the Euro exchange rate would result in a net increase in
earnings and cash flows of $3.0 million.

On May 15,
2008, the Company entered into a swap agreement with respect to its Series B
debentures, in the principal amount of $165.7 million, due 2016. As a result of
these agreements the Company is currently paying an effective interest rate of
LIBOR plus 5.12% on $43.9 million of these notes, as compared to the
original 6.6% fixed rate which is linked to the Israeli consumer price index.
As of September 30, 2008, the value of the currency swap resulted in a $0.8
million decrease in other assets and a corresponding increase in interest
expense.

Equity Price Risk

The Companys
investments at September 30, 2008 included trading marketable securities which
are recorded at a fair value of $6.3 million, including a net unrealized gain
of $0.8 million, and $56.4 million of trading securities that are classified as
available for sale, including a net unrealized loss of $0.8 million. Those securities
have exposure to equity price risk. The estimated potential loss in fair value
resulting from a hypothetical ten percent decrease in prices quoted on stock
exchanges is approximately $6.3 million. There will be no impact on cash flow
resulting from a hypothetical ten percent decrease in prices quoted on stock
exchanges.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Internal
Control Over Financial Reporting

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

25

---

---

|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Part II            OTHER
 INFORMATION
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Item 1.                                | Legal
 Proceedings:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                       | On January 1, 2002, Galha filed a
suit against the Company and other parties, including directors of Paradise Industries
Ltd. (Paradise) appointed by the Company, in the Tel Aviv District Court, in
the amount of NIS 11,560,000 ($3 million). Galha claimed that the Company, which was a
shareholder of Paradise, and another shareholder of Paradise, misused funds that were
received by Paradise from an insurance company for the purpose of reconstructing an
industrial building owned by Galha and used by Paradise which burnt down. Paradise is
currently involved in liquidation proceedings. Ampal entered into a guarantee in favor of
Galha for a benefit of a defendant for the payment of an amount of up to approximately NIS
4,381,000 ($1,281,000) if there is final judgment against the Company.                                                                                                                                                  
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                       | On May 26,
 2003, the Company and the directors of Paradise appointed by the Company
 filed a third party claim against Arieh Israeli Insurance Company Ltd.
 (Arieh) in the Tel Aviv District Court claiming that, to the extent the
 court decides that the directors of Paradise appointed by the Company will
 have to pay any amounts to Galha, Arieh will pay such amounts on behalf of
 the directors in accordance with the Directors and Officers insurance policy
 that the Company had at that time with Arieh. Arieh filed a statement of
 defense and stated that the policy does not cover the claim. At this stage,
 the Company cannot estimate the impact this claim will have on it. In March
 2008, the dispute was submitted to mediation by order of the court, with the
 consent of the parties. See also Part II  Item 1, Legal Proceedings, of
 the Companys Quarterly Reports on Form 10-Q for the periods ended March 31
 and June 30, 2008.
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Item 1A.                               | RISK FACTORS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|                                       | In addition
 to the other information set forth in this report, you should carefully
 consider the factors discussed in Part I, Item 1A. Risk Factors in our
 Annual Report on Form 10-K for the year ended December 31, 2007, which could
 materially affect our business, financial condition or future results. The
 risks described in our Annual Report on Form 10-K are not the only risks
 facing our Company. Additional risks and uncertainties not currently known to
 us or that we currently deem to be immaterial also may materially adversely
 affect our business, financial condition and/or operating results.                                                                                                                                                                                                                                                                                                                                          
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Item 2.                                | Unregistered
 Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                       | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Item 3.                                | Defaults
 upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                       | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Item 4.                                | Submission
 of Matters to a Vote of Security Holders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                       | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Item 5.                                | Other Information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                       | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Item 6.                                | Exhibits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|     |  |                                                                                                                                                                                                                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  |  | Exhibits:                                                                                                                                                                                                                                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                            
|4.a  |  | English
 Translation of the original Hebrew language Trust Deed dated, April 6, 2008,
 between Ampal American Israel Corporation and Clal Financial Trusts 2007
 Ltd., and its amendments (Filed as exhibit 4.a to Form 10-Q, for the quarter
 ended March 31, 2008, and incorporated herein by reference).
|     |  |                                                                                                                                                                                                                                                                                                            
|11.1 |  | Schedule
 Setting Forth Computation of Earnings Per Share of Class A Stock.                                                                                                                                                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                            
|31.1 |  | Certification
 of Yosef A. Maiman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                            
|31.2 |  | Certification
 of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                            
|32.1 |  | Certification
 of Yosef A. Maiman and Irit Eluz pursuant to 18 U.S.C. Section 1350, as
 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 

26

---

---

AMPAL-AMERICAN ISRAEL CORPORATION AND
SUBSIDIARIES

SIGNATURES

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

|                        |                                      | 
|----------------------- | ------------------------------------ | 
|                        | AMPAL-AMERICAN
 ISRAEL 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
 5, 2008 |                                      | 

27

---

---

AMPAL-AMERICAN ISRAEL CORPORATION AND
SUBSIDIARIES

Exhibit Index

|            |  |                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                            
|4.a         |  | English
 Translation of the original Hebrew language Trust Deed, dated April 6, 2008,
 between Ampal American Israel Corporation and Clal Financial Trusts 2007
 Ltd., and its amendments (Filed as exhibit 4.a to Form 10-Q, for the quarter
 ended March 31, 2008, and incorporated herein by reference).
|            |  |                                                                                                                                                                                                                                                                                                            
|11.1        |  | Schedule
 Setting Forth Computation of Earnings Per Share of Class A Stock.                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                            
|31.1        |  | Certification
 of Yosef A. Maiman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                            
|31.2        |  | Certification
 of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                            
|32.1        |  | Certification
 of Yosef A. Maiman and Irit Eluz pursuant to 18 U.S.C. Section 1350, as
 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 

28

---

---