Exhibit 10.36

                             STOCK OPTION AGREEMENT

                  STOCK OPTION AGREEMENT dated as of  _________,  ____,  between
DATA SYSTEMS & SOFTWARE INC., a Delaware corporation (the "Company"), and
_________________ (the "Optionee").

                              Preliminary Statement

                  The Company's 1994 Stock Option Plan for Outside Directors, as
amended (the  "Plan")  provides for the grant to any director who is an "outside
director" under the eligibility  criteria set forth in the Plan, of an option to
purchase  _____ shares of the Company's  common stock,  par value $.01 per share
("Common  Stock"),  subject to the Plan and the terms and  conditions set forth.
The parties hereto desire to enter into this Agreement in order to set forth the
terms of such option.

                  Accordingly, the parties hereto agree as follows:

                  1.  Grant of  Option.  Subject  to the Plan and the  terms and
conditions of this  Agreement,  the Company hereby grants to Optionee the option
(the  "Option") to purchase  from the Company up to _____ shares of Common Stock
at a price per  share of $____.  The  number  of  shares  to which  this  Option
pertains  and the price per share at which  this  Option  may be  exercised  are
subject to  adjustment  in  accordance  with the  provisions of Section 6 of the
Plan.

                  2. Plan Governs Terms of Option.  The Option is subject in all
respects to the terms and  conditions  of the Plan,  a copy of which is attached
hereto as Exhibit A.

                  3. Time of Exercise of Option. This Option may be exercised as
to all ______  shares at any time,  or as to any  portion  thereof  from time to
time,  after  __________,  _____,  unless  this  Option has been  terminated  in
accordance with the provisions of Paragraph 4.

                  4.  Termination  of  Option.  This  Option  shall  immediately
terminate upon the earliest of (i) _________,  ____, (ii) the first  anniversary
of the date  upon  which the  Optionee  ceases to be an  Eligible  Director  (as
defined in Section 3 of the Plan), or (iii) ____ days after the date an Optionee
ceases to be a director.

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                  5.  Manner  of  Exercise.  This  Option  may be  exercised  by
delivering to the Company a written notice (signed by the Optionee)  stating the
number of shares with respect to which the Option is being  exercised,  together
with full payment of the purchase price  therefor in cash or by certified  check
payable to the order of the Company or by delivery  of  certificates  evidencing
shares of Common Stock  registered in the name of the Optionee (duly endorsed in
blank or with stock powers attached)  having a Fair Market Value  (determined in
accordance  with  Section  5(d)(i) of the Plan) at least equal to the  aggregate
exercise  price of the shares  purchasable  upon  exercise of this option,  or a
combination of cash and shares.  The Board may require  Optionee to remit to the
Company an amount sufficient to satisfy any federal,  state or local withholding
tax  requirements  prior to  delivering  to Optionee any shares  purchased  upon
exercise of this  Option.  This Option may not be  exercised  with  respect to a
fractional share.

                  6.  Restriction on Transfer.  This Option may not be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered except
by will  or the law of  descent  and  distribution  and  during  the  Optionee's
lifetime may be  exercised  only by Optionee,  or  Optionee's  guardian or legal
representative.

                  7.  Notice.   Any  notice  or  communication  to  the  Company
hereunder  shall be in writing  and shall be deemed to have been duly given when
delivered in person,  or by United States mail, to the following  address (or to
such other address as the Company shall from time to time specify):

                             Data Systems & Software Inc.
                             200 Route 17
                             Mahwah, New Jersey  07340
                             Attention:  Secretary

                  IN WITNESS  WHEREOF,  the parties  hereto have  executed  this
Agreement as of the date and year first above written.

                                        DATA SYSTEMS & SOFTWARE INC.

                                        By:_____________________________
                                           Name:
                                           Title:

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Optionee

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                              OPTION EXERCISE FORM

DATA SYSTEMS & SOFTWARE INC.
200 ROUTE 17
MAHWAH, NJ  07430

Gentlemen:

                  I hereby  exercise the following  portion of the stock options
that have heretofore been granted to me as follows:

                  Date of grant_________________________________________________

                  Exercise price per share $____________________________________

                  Number of options granted_____________________________________

                  Number of options held________________________________________

                  Number of options being exercised hereby____________

                  In connection with this exercise [check one]:

                  _____ I enclose my check in the amount of $______________

                  _____ I am  delivering  to a broker  designated or approved by
the Company irrevocable instructions to (i) sell shares of Common Stock acquired
upon exercise and (ii) promptly deliver to the Company a portion of the proceeds
thereof equal to the exercise price and any applicable withholding taxes.

                  I  hereby  agree  to  execute  whatever  other  documents  are
necessary in order to comply with the Plan and any applicable legal requirements
in connection with the issuance of the stock to me pursuant to the Plan.

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Optionee (Signature)                              Social Security Number

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Please print name

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Date                                              Address