<PAGE>

                                                                  EXHIBIT 10.20B

                              BANK HAPOALIM B.M.
                       CASH COLLATERAL PLEDGE AGREEMENT
                       --------------------------------
                                (U.S. Currency)

                                                   Dated as of December 15, 2000
================================================================================

                                Specific Terms
                                --------------

     Pledgor:  Level 8 Systems, Inc.

(a)  Pledgor's Address (include only one address):
     -----------------
     8000 Regency Parkway
     Cary, NC 27511

     E-mail:______________________________________________________
     Answerback:__________________________________________________
     Fax No.:_____________________________________________________

(b)  Description of Deposit and Depository:
     -------------------------------------

     Original principal amount of Deposit Pledged: $10,000,000.00

     Branch (check one and complete if necessary):

     [X] New York Branch, 1177 Avenue of the Americas, New York, New York  10036
     [_] Other (specify): Bank Hapoalim

     Account No. (if available):  01057827

     Type of Deposit (check one and complete if necessary):

     [X] Time Deposit
     [_] Money Market
     [_] Demand Deposit

(c)  Debtor(s), if any:  Other than Pledgor(s) whose obligations are secured by
     --------------------
     this Agreement.

     None.




================================================================================
<PAGE>

                                      -2-

Definitions of certain capitalized terms are included in Section 21.

  1.  Pledge and Assignment; Security for Liabilities:  For value received,
      -----------------------------------------------
Pledgor hereby assigns, transfers and pledges to Bank Hapoalim B.M. (the "Bank")
and grants to the Bank, as security for any and all Liabilities of Pledgor and
of any Debtor(s), identified in Specific Terms, a security interest in all of
the right, title and interest of Pledgor in, to and under the Collateral
described below.

  As used herein, "Collateral" shall mean (i) the Deposit, (ii) any cash or
other property at any time and from time to time receivable or otherwise
distributable in respect of, in exchange for or in substitution for the Deposit,
including interest accruing thereon, (iii) any deposits or other sums at any
time credited by or due from any office of the Bank or any subsidiary of the
Bank (hereinafter a "Subsidiary") to Pledgor (regardless of the currency thereof
and whether general or special, contingent and/or matured), and securities or
other property of Pledgor at any time in the possession of any office of the
Bank or Subsidiary, (iv) all replacements, substitutions, extensions, renewals
and proceeds of any and all of the foregoing and (v) all rights and privileges
of Pledgor with respect to any and all of the foregoing.

  2.  Guarantee by Pledgor of Liabilities of Debtors:  (a) Subject to Section
      ----------------------------------------------
2(b), Pledgor irrevocably and unconditionally guarantees to the Bank payment
when due, whether by demand, acceleration or otherwise, without defense, waiver,
setoff or counterclaim, of each and every Liability of any Debtor (hereinafter,
"Pledgor's Guarantee Undertaking").

  (b) In the event of any inconsistency with respect to the Pledgor's Guarantee
Undertaking between this Agreement and any other guarantee agreement executed by
Pledgor in favor of the Bank (hereinafter, a "Guarantee"), the terms of such
Guarantee shall apply.  In the event that there shall not exist any such other
Guarantee, the following terms shall apply to Pledgor's Guarantee Undertaking:
(i) the obligation of Pledgor with respect to the Liabilities of the Debtor(s)
shall not exceed the value from time to time of the Collateral and (ii) the Bank
shall be limited to enforcing its remedies against Pledgor in connection with
this Agreement with respect to the Liabilities of the Debtor(s) solely against
the Collateral.

  3.  The Deposit: (a)  On or before the date of this Agreement, Pledgor has
      -----------
placed immediately available funds with the Bank as further identified above
under "Specific Terms" (individually and collectively the "Deposit"). The
Deposit and any interest or other income thereon shall be kept in an account
(the "Account") at the Branch or Subsidiary of the Bank identified above (such
Branch or Subsidiary sometimes referred to hereinafter as the "Depository").
The Deposit shall also include any amounts delivered by the Pledgor for deposit
in the Account subsequent to the date of this agreement as required by the terms
of the Loan Agreement between the Bank and the Borrower dated as of the date
hereof.  The Deposit shall be kept under the sole dominion and control of the
Depository subject, however to the instructions of the Bank, if the Depository
is a Subsidiary.  Pledgor shall have no right to withdraw any amounts from the
Deposit, including any interest paid thereon, except as provided in the Loan
Agreement and when the Liabilities shall have been paid in full.


  (b) If any Deposit is evidenced by a certificate or instrument, the Pledgor
shall deliver and, if necessary, endorse in any manner necessary to transfer, to
the Bank any certificates or instruments constituting, representing or
evidencing any such Deposit.

  (c) Any Deposit may be issued in book entry form by the Depository against
funds which have been booked in the Account, and a confirmation of deposit, as
distinguished from a physical certificate may, in the discretion of the
Depository, serve to evidence such deposit.

  4.  Rights of Bank with Respect to Deposit: (a) The Bank may from time to time
      --------------------------------------
(i) apply any
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                                      -3-

funds in the Deposit to satisfy the Liabilities (or any part thereof) as the
same shall become due or payable in accordance with the terms thereof and as
otherwise provided by applicable law, in each case, regardless of the stated
maturity of the Deposit, (ii) exercise all rights of Pledgor in the Deposit and
(iii) retain all income or interest on the Deposit as additional Collateral.

  (b) As long as any of the Liabilities to which this Agreement applies shall be
outstanding and no Event of Default shall have occurred, on the maturity date of
the Deposit, the amount due with respect thereto, including interest thereon,
will automatically be placed in a new deposit, which shall then be deemed to be
the "Deposit."  The term of such Deposit shall be, at the option of and upon
notice by the Pledgor given to the Depository at least seven Business Days prior
to the then existing maturity date, one of such terms as may be permitted at
such time by the Depository, or in the absence of such selection by the Pledgor
and notice to the Depository, a term selected by the Depository not to exceed
the longer of one year or the term of the maturing Deposit.

  5.  Representations, Warranties and Covenants:  Pledgor hereby represents and
      -----------------------------------------
warrants to, and covenants with, the Bank that, (a) the Collateral existing on
the date hereof is and will continue to be, and, as to Collateral arising after
the date hereof, will be, free from all security interests or other encumbrances
except the Bank's rights under this Agreement and/or any other agreement between
Pledgor and the Bank, (b) Pledgor has full right, power and authority to enter
into this Agreement, grant the security interests in the Collateral hereunder
and perform Pledgor's obligations hereunder, (c) the execution, delivery and
performance of this Agreement, the pledge of the Collateral hereunder and the
exercise of the Bank's rights hereunder and/or under applicable law do not and
will not violate or contravene the terms of Pledgor's charter documents or any
agreement, instrument, law, rule, regulation, or judgment binding on Pledgor or
its properties, (d) no registration with, or consent or approval of, or other
action by or with, any court or governmental body or authority or any other
Person is required in connection with the execution, delivery and performance of
this Agreement or the exercise of the Bank's rights hereunder, (e) this
Agreement constitutes the legal, valid and binding obligation of Pledgor
enforceable in accordance with its terms, (f) the security interests granted
hereunder to the Bank are and will continue to be (or will be, in the case of
Collateral hereafter arising) a valid first lien on and security interest in the
Collateral, superior and prior to the rights of all third Persons, and no filing
or other act is required to create and perfect such lien and security interest,
and (g) the Pledgor is not presently insolvent and the transfer and pledge of
the Collateral to the Bank does not result in the insolvency of the Pledgor.

  6.  Further Assurances; Bank Appointed Attorney-in-Fact:  Pledgor agrees at
      ---------------------------------------------------
Pledgor's own expense to take such actions and to execute such writings as the
Bank may request from time to time and irrevocably authorizes the Bank to take
such actions and to execute such writings as Pledgor's agent and attorney-in-
fact, which authorization is irrevocable and coupled with an interest to
perfect, confirm and assure the Bank's security interest in the Collateral, to
assist the Bank's realization thereon and to otherwise accomplish the purposes
hereof.

  7.  Rights and Remedies Upon Default:  Upon the occurrence of any Event of
      --------------------------------
Default, the Bank shall have, in addition to other rights provided in this
Agreement and the rights of a secured party under the Uniform Commercial Code as
in effect in the State of New York and under any other applicable law as in
effect from time to time, the right, without prior notice (except as may be
required by law and may not be waived) to, or consent from, the Pledgor and
without releasing or affecting this Agreement or the Pledgor's obligation
hereunder, to (i) demand and receive payments on or from the Deposit and give
releases, receipts and acquittances therefor, (ii) exercise any right of set-off
the Bank may have with respect to the Deposit (regardless of its stated
maturity), (iii) effect one or more withdrawals from the Account (regardless of
its stated maturity) as may be required to pay wholly or partially any Liability
of the Pledgor or any Debtor referred to in, or any obligation of the Pledgor
created by, this Agreement at any time outstanding, and (iv) apply any amounts
so withdrawn, set-off or received on account of any Liability referred to in, or
any obligation of the Pledgor created by, this Agreement.
<PAGE>

                                      -4-

  In the course of exercising the remedies provided for hereunder and/or under
applicable law, the Bank shall have the right to apply any amount held, realized
or received by it first, toward the payment of any of its costs and expenses in
enforcing this Agreement, in realizing upon or protecting any Collateral and in
enforcing or collecting, or preserving its rights with respect to, the
Liabilities (including, without limitation, attorneys' fees and expenses),
second, to the payment of all other Liabilities in such order as the Bank may
elect, and third, as otherwise provided by applicable law.  Any instruments or
certificates evidencing any Collateral remaining after the Liabilities have been
paid in full shall be delivered to Pledgor or Pledgor's successors or assigns or
as otherwise required under applicable law.

  8.  Security Interest Absolute: The obligations of Pledgor hereunder shall
      --------------------------
remain in full force and effect without regard to, and shall not be impaired by:
(a) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of any Debtor or any guarantor, endorser or
other Person providing security or otherwise liable for any of the Liabilities;
(b) any exercise or nonexercise, or any waiver, by the Bank of any right,
remedy, power or privilege under or in respect to the Liabilities or any other
agreement, instrument or document executed in connection with or relating to or
evidencing any of the Liabilities or any security for or any guarantee of any of
the Liabilities (other than this Agreement); (c) any extension, renewal,
continuation of or amendment to or modification of any of the Liabilities, any
agreement, instrument or document executed in connection with or relating to or
evidencing any of the Liabilities or any security for or any guarantee of any of
the Liabilities (other than this Agreement); or (d) the invalidity, irregularity
or unenforceability of all or any part of the Liabilities or any security for or
any guarantee of any of the Liabilities, whether or not Pledgor shall have
notice or knowledge of any of the foregoing.

  9.  Reinstatement of Liability: If claim is ever made upon the Bank for
      --------------------------
repayment or recovery of any amount or amounts received by the Bank in payment
or on account of any of the Liabilities of any Debtor and the Bank repays all or
part of said amount by reason of (a) any judgment, decree or order of any court
or administrative body having jurisdiction over the Bank or any of its property,
or (b) any settlement or compromise of any such claim effected by the Bank with
any such claimant (including such Debtor), then any such judgment, decree,
order, settlement or compromise shall be binding upon Pledgor, notwithstanding
any revocation hereof or the cancellation of any note or other instrument
evidencing any liability of such Debtor, and Pledgor shall be and remain liable
to the Bank hereunder for the amount so repaid or recovered to the same extent
as if such amount had never originally been received by the Bank.

  10. Waiver of Subrogation and Creditor Status: Pledgor irrevocably waives and
      -----------------------------------------
gives up any and all legal and equitable rights and claims arising from the
existence or performance of this Agreement that Pledgor may now or hereafter
have and that would result in the Pledgor being deemed a "creditor" (under the
U.S. federal Bankruptcy Code or any other law) of any Debtor or of any other
person or entity directly or contingently liable for any of the Liabilities of
such Debtor (a "Third Party"), including without limitation all rights of
subrogation, indemnity, reimbursement, exoneration and/or contribution, and
including without limitation any such right or claim against or with respect to
any property (including without limitation any collateral security) of such
Debtor or of any Third Party.  In furtherance, and not in limitation, of the
preceding waiver, Pledgor agrees that any exercise by the Bank of its security
interest in any of the Collateral securing any of the Liabilities of any Debtor
shall be deemed a contribution to the capital of such Debtor, and any such
payment shall not constitute Pledgor as a "creditor" of any such Debtor or of
any Third Party.

  11. Limitation on Bank Liability:  Beyond the exercise of reasonable care to
      ----------------------------
assure the safe custody of the Collateral in its possession, the Bank shall have
no duty or liability to preserve rights pertaining thereto.  Furthermore, the
Bank is under no duty to the Pledgor to protect, secure, insure or obtain or
perfect any security interest in any property pledged by any other Person in
connection with any Liability of the Pledgor or of any Debtor.  In any event,
the Bank and its directors, officers and employees shall not be liable for any
special, consequential or punitive damages.
<PAGE>

                                      -5-

  12. Indemnification:  Pledgor agrees to indemnify and hold the Bank and/or
      ---------------
any agents of the Bank harmless from and against, and pay on demand to the Bank
or such agents, any and all loss, liability, cost and expense (including filing
fees and reasonable attorneys' fees and expenses in advising, representing or
litigating on behalf of the Bank) in connection with any matter relating to
Pledgor, the Collateral and/or this Agreement, including the Bank's exercising
any of its rights, remedies and powers hereunder, unless such loss, liability,
cost or expense shall be due to willful misconduct or gross negligence on the
part of the Bank or such agents.  Any such loss, liability, cost or expense
shall, from the date incurred, be part of the Liabilities secured by this
Agreement.

  13. Waiver of Protest, etc.:  Pledgor waives notice of acceptance of this
      -----------------------
Agreement and notice of any Liability to which it may apply, and waives
presentment, notice of payment, protest, notice of dishonor or nonpayment of any
Liabilities of any Debtor, or of any suit or the taking of other action by the
Bank against, and any other notice to, any Person liable thereon.

  14. Parties: Pledgor, if more than one, shall be jointly and severally liable
      -------
under this Agreement.  Anyone signing this Agreement shall be bound hereby,
whether or not anyone else signs this Agreement at any time.  Any reference
herein to the Pledgor or to any Debtor shall include (a) any successor or
successors to which all or substantially all of the business or assets of
Pledgor or of such Debtor shall have been transferred directly or indirectly and
(b) any other corporation, firm or entity into or with which Pledgor or any
Debtor shall have merged, consolidated or reorganized.  The term "Bank" includes
any agent of the Bank acting for it.

  15. Amendments, etc.: None of the terms or conditions of this Agreement may
      ----------------
be changed, waived, modified or varied in any manner whatever unless in a
writing duly signed on behalf of the Bank; and each such waiver, if any, shall
be a waiver only with respect to the specific instance involved and shall in no
way impair the rights of the Bank or the obligations of the Pledgor to the Bank
in any other respect at any other time.

  16. Provisions of Other Agreements: Neither the provisions of this Agreement
      ------------------------------
nor the Bank's acceptance of a pledge of and/or security interest in the
Collateral shall in any way limit, diminish or waive any of the Bank's rights
under any other agreement with Pledgor or any other Person, by law or otherwise.

  17. No Representation of Nonenforcement: Pledgor acknowledges that no
      -----------------------------------
representative or agent of the Bank has represented or indicated that the Bank
will not enforce any provision of this Agreement in the event of litigation or
otherwise.

  18. Benefit of Agreement; Revocation: This Agreement is binding upon Pledgor
      --------------------------------
and the executors, administrators, successors and assigns of Pledgor; provided,
however, Pledgor may not, without the prior written consent of the Bank, assign
any of its rights or obligations hereunder to any person. Pledgor agrees that
this Agreement shall continue until a written revocation signed by Pledgor, or
in case of the death of the Pledgor, by some person qualified to act for the
estate of the Pledgor, is received by the Bank, and that such revocation shall
not affect the rights of the Bank in the Collateral and proceeds thereof arising
prior to receipt of such revocation.

  19. Pledgor as Partnership: In the event that Pledgor is a partnership, this
      ----------------------
Agreement shall continue in effect and apply to all obligations of Pledgor
and/or any successor partnership(s) from time to time incurred or accruing
before or after any dissolution, termination or changes in personnel of the
Pledgor and/or any successor partnership(s).

  20. Bank Transfers:  (a) Transferability.  Without limiting the Bank's rights
      --------------       ---------------
hereunder the Bank may make a Transfer of all or any part of (i) any obligation
of Pledgor to the Bank, (ii) any obligation of
<PAGE>

                                      -6-

any other party in connection with any of such obligations, (iii) any agreement
of any party in connection with any of such obligations, (iv) any collateral,
mortgage, lien or security interest, however denominated, securing any of such
liabilities, and/or (v) the Bank's rights and, if any, liabilities with respect
to any of the foregoing. (b) Extent of Transfer.  In the event the Bank shall
                             ------------------
make any Transfer of any of the above listed items ("Transferred Items"), then,
to the extent provided by the Bank with respect to such Transfer, the Transferee
shall have the rights, powers, privileges and remedies of the Bank. The Bank
shall thereafter, to the extent of such Transfer, be forever relieved and fully
discharged from all liability or responsibility, if any, that it may have to any
Person with respect thereto, except for claims, if any, arising prior to or upon
such Transfer. The Bank shall retain all its rights and powers with respect to
any Transferred Items to the extent that it has not made a Transfer thereof.
(c) Disclosures. The Bank is authorized to disclose to any prospective or
    -----------
actual Transferee any information that the Bank may have or acquire about
Pledgor and any information about any other Person submitted to the Bank by or
on behalf of Pledgor.

     21.  Definitions: As used herein, the following terms shall have the
          -----------
meanings specified below and shall include in the singular number the plural and
in the plural number the singular:

"Business Day" shall mean any day on which banks in New York City and, if
different, the city where the Office is located, are regularly open for
business.

"Event of Default" shall mean the occurrence of any of the following: (i) a
default or Event of Default under any documentation for any loan or other
facility made available by the Bank to Pledgor or to any Debtor, (ii) the
Pledgor shall fail, following three Business Days' notice from the Bank to make
any required deposits as may be required pursuant to Section 4(b) hereof or the
Pledgor shall fail to perform any of its other obligations hereunder, (iii) any
representation or warranty made by the Pledgor in this Agreement shall prove to
be incorrect or misleading in any material respect,  or (iv) any levy upon,
seizure of, or the commencement of any legal proceeding against the Collateral.

"Governmental Authority" shall mean any domestic or foreign, national or local
(a) government, (b) governmental, quasi-governmental or regulatory agency or
authority, (c) court or (d) central bank or other monetary authority.

"Liabilities" shall mean any and all indebtedness, obligations and liabilities
(in whole or in part) for the payment of money, whether (a) absolute or
contingent, (b) joint, several or independent, (c) now or hereafter existing,
(d) due or to become due, (e) secured or unsecured, of Pledgor or any Debtor to,
or held or to be held by, the Bank in any jurisdiction worldwide for its own
account or as agent for another or others, whether created directly or acquired
by Transfer or otherwise, and any and all extensions, continuations, renewals
and/or modifications thereof.

"Office" shall mean 1177 Avenue of the Americas, New York City, or such other
office or address as the Bank may notify the Pledgor.

"Person" shall mean any person, partnership, joint venture, company,
corporation, unincorporated organization or association, trust, estate,
Governmental Authority, or any other entity.

"Transfer" shall mean any negotiation, assignment, participation, conveyance,
grant of a security interest, lease, delegation or any other direct or indirect
transfer of a complete or partial, legal, beneficial, economic or other interest
or obligation.

"Transferee" shall mean any Person to whom a transfer is made.

     22.  Jurisdiction; Waiver of Sovereign Immunity: Pledgor submits to the
          ------------------------------------------
non-exclusive jurisdiction of the federal and state courts in the State of New
York and, if different, the state where the
<PAGE>

                                      -7-

Office is located, with respect to any legal action or proceeding arising
hereunder or relating to any of the obligations of Pledgor. Pledgor hereby
irrevocably consents to service of process in any such action or proceeding in
any of such courts by personal delivery at, or by mail addressed to any address
to which the Bank may address notices to the Pledgor as set forth below. Pledgor
waives the right to assert any counterclaim or setoff in any litigation brought
to enforce the Bank's above and remedies hereunder. In connection with any
litigation, Pledgor irrevocably waives any sovereign immunity that it may have
or hereafter acquire, including but not limited to immunity from the
jurisdiction of any court, from any legal process, from attachment prior to
judgment, from attachment in aid of execution, from execution or otherwise.

  23.  CHOICE OF LAW; WAIVER OF JURY TRIAL: THIS AGREEMENT AND RIGHTS AND
       -----------------------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK EXCEPT TO THE EXTENT
THAT PERFECTION OF THE SECURITY INTEREST HEREUNDER OR REMEDIES HEREUNDER IN
RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES.
PLEDGOR WAIVES, AND UNDERSTANDS THAT THE BANK WAIVES, ANY RIGHT IT MAY HAVE TO
TRIAL BY JURY IN ANY PROCEEDING BROUGHT IN CONNECTION WITH THIS AGREEMENT.

  24.  Continuing Nature of Agreement: This Agreement is a continuing one, and
       ------------------------------
all Liabilities to which it applies or may apply under the terms hereof shall be
conclusively presumed to have been created in reliance hereon.

  25.  Descriptive Headings: The descriptive headings for the sections of this
       --------------------
Agreement are inserted for reference only and shall not be deemed to affect the
meaning or construction of any provision of this Agreement or be considered a
part of this Agreement.

  26.  Notices: Any notice in connection with this Agreement shall be in writing
       -------
and may be delivered personally or by cable, telex, telecopy or other electronic
means of communication, or certified mail, return receipt requested, addressed
(a) to Pledgor as set forth above or to any other address that the Bank believes
to be the address of the Pledgor, and (b) to the Bank at Bank Hapoalim B.M.,
1177 Avenue of the Americas, New York, New York 10036, Attention:  Legal
Department or to such other address as the Bank may notify the Borrower.  Any
such notice or other communication may also be addressed to such other
address(es) as may be designated in writing afterwards.  All such notices or
other communications shall be deemed given when delivered personally or
electronically or when mailed, except notice of change of address or notice of
revocation pursuant to Section 18 hereof, each of which shall be deemed to have
been given only when received.

  27.  "In Trust For" Accounts:  If the Deposit or the Account is held in
        ----------------------
trust for one or more beneficiaries, the Pledgor acknowledges that whenever the
Bank chooses to exercise any of its rights hereunder, then to such extent the
trust created in the Deposit or the Account or the benefit of such beneficiaries
shall be revoked, terminated and/or modified.

  28.  Termination; survival:  The Bank may terminate this Agreement by
       ---------------------
notice to the Pledgor Section 12 will survive termination of this Agreement.

  29.  Entire agreement:  This Agreement is the entire agreement, and
       ----------------
supersedes any prior agreements and contemporaneous oral agreements, of the
parties concerning its subject matter.

  30.  Amendments:  No amendment of, or waiver of a right under, this
       ----------
Agreement will be binding unless it is in writing and signed by the party to be
charged.
<PAGE>

                                      -8-


     31.  Severability:  To the extent a provision of this Agreement is
          ------------
unenforceable, this Agreement will be construed as if the unenforceable
provisions were omitted.


For Pledgors that are individuals:      For all other Pledgors (e.g.
                                        corporations or partnerships):

(Signature) _____________________              Level 8 Systems, Inc.
                 PLEDGOR                -----------------------------------
                                               NAME OF PLEDGOR

_________________________________       By:________________________________
           PRINT NAME OF PLEDGOR                  (Signature)

(Signature)______________________       By:________________________________
                 PLEDGOR                Title or Capacity:_________________
                                        (if signing on behalf of Pledgor)

_________________________________       By:________________________________
           PRINT NAME OF PLEDGOR                  (Signature)


                                        Title or Capacity:_________________
                                        (if signing on behalf of Pledgor)