**EXHIBIT
      10.12**





**NON-PLAN
      STOCK OPTION AGREEMENT**





STOCK
      OPTION AGREEMENT dated as of March 27, 2006 between DATA SYSTEMS & SOFTWARE
      INC., a Delaware corporation (the "Company"), and Shane Yurman (the
      "Optionee").





WHEREAS,
      on March 27, 2006 at a meeting of the Board of Directors of the Company (the
      “Board”), the Board by resolution authorized the granting to Shane Yurman, a
      non-management director and member of the Board, an option to purchase 25,000
      shares of the Company's Common Stock, par value $.01 per share ("Common Stock").





WHEREAS,
      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; Exercise Price .
      Subject
      to the terms and conditions of this Agreement, the Company hereby grants to
      Optionee the option (the "Option") to purchase, from the Company, up to 25,000
      shares of Common Stock (“Option Shares”) at a price per share of $2.65 (the
“Exercise Price”). The Option Shares and the Exercise Price are subject to
      adjustment in accordance with the provisions set forth in Section 5
      below.





2. Non-Incentive
      Stock Option .
      The
      Option is not intended to qualify as an "incentive stock option" within the
      meaning of Section 422A of the Internal Revenue Code of 1986, as
      amended.





3. Vesting
      of Option .
      This
      Option shall vest and thereby become exercisable with respect to the Option
      Shares on the date of the next held annual meeting; to be held in
      2006.




4. Termination
      of Option .





(a)           This
      Option shall terminate upon the earlier of (i) the date 18 months from the
      date
      on which Optionee ceases to be a director or (ii) March 30, 2011 (the
“Termination Date”).




(b)           Upon
      the death of the Optionee, the portion of the Option, if any, that was
      exercisable as of the date of death may be thereafter be exercised by the legal
      representative of the estate or by the legatee of the Optionee under the will
      of
      the Optionee, for a period of one year from the date of such death or until
      the
      Termination Date, whichever is shorter.





5. Adjustments .





(a) In
      the
      event of a stock split, stock dividend, combination of shares, or any other
      similar change in the Common Stock as a whole, the Board shall make equitable,
      proportionate adjustments in the number and kind of shares covered by the Option
      and in the Exercise Price.








(b)           In
      the event of any reclassification or reorganization of the outstanding shares
      of
      Common Stock other than a change covered by subsection (i) hereof or that solely
      affects the par value of such shares of Common Stock, or in the case of any
      merger or consolidation of the Company with or into another corporation (other
      than a consolidation or merger in which the Company is the continuing
      corporation and that does not result in any reclassification or reorganization
      of the outstanding shares of Common Stock), the Optionee shall have the right
      thereafter (until the expiration of the right of exercise of this Option) to
      receive upon the exercise hereof after such event, for the same aggregate
      Exercise Price payable hereunder immediately prior to such reclassification,
      reorganization, merger or consolidation, the amount and kind of consideration
      receivable by a holder of the number of shares of Common Stock obtainable upon
      exercise of this Option immediately prior to such event. The provisions of
      this
      subsection (ii) shall similarly apply to successive reclassifications,
      reorganizations, mergers or consolidations, sales or other
      transfers.




6. Manner
      of Exercise .
      This
      Option may be exercised by the delivery to the Company of a written notice
      signed by the Optionee in the form of Exhibit A hereto, together with either
      (i)
      full payment of the purchase price therefor in cash or by certified check
      payable to the order of the Company or (ii) irrevocable instructions to a broker
      designated or approved by the Company to sell shares of Common Stock equal
      to
      the Option Shares and promptly deliver to the Company a portion of the proceeds
      thereof equal to the Exercise Price and any applicable withholding taxes. The
      Optionee may be required to remit to the Company an amount sufficient to satisfy
      any federal, state or local withholding tax requirements prior to delivering
      to
      Optionee the Option Shares. This Option may not be exercised with respect to
      a
      fractional share.





7. Restriction
      on Transfer .





(a)           This
      Option may not be assigned or transferred except by will or the law of descent
      and distribution and during the Optionee's lifetime may be exercised only by
      Optionee.




(b)           Anything
      in this Agreement to the contrary notwithstanding, the Optionee hereby agrees
      that he or she shall not sell, transfer by any means or otherwise dispose of
      the
      Options Shares acquired by him without registration under the Securities Act,
      or
      that in the event that they are not so registered, unless (i) an exemption
      from
      the Securities Act requirements is available thereunder, and (ii) the Optionee
      has furnished the Company with notice of such proposed transfer and the
      Company’s legal counsel, in its reasonable opinion, shall deem such proposed
      transfer to be so exempt.





8. Miscellaneous .





(a)           Notices.
      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):


-2-





Data
      Systems & Software Inc.


200
      Route
      17


Mahwah,
      New Jersey 07340


Attention:
      Secretary





(b)           Stockholder
      Rights. The Optionee shall not have any of the rights of a stockholder with
      respect to the Option Shares until such shares have been issue after the due
      exercise of the Option.





(c)           Waiver.
      The waiver by any party hereto of a breach of any provision of this Agreement
      shall not operate or be construed as a waiver of any other or subsequent
      breach.





(d)           Entire
      Agreement. This Agreement constitutes the entire agreement between the parties
      with respect to the subject matter hereof. This Agreement may not be amended
      except by writing executed by the Optionee and the Company.





(e)           Binding
      Effect; Successors. This Agreement shall inure to the benefit of and be binding
      upon the parties hereto and, to the extent not prohibited herein, their
      respective heirs, successors, assigns and representatives. Nothing in this
      Agreement, expressed or implied, is intended to confer on any person other
      than
      the parties hereto and as provided above, their respective heirs, successors,
      assigns and representatives, any rights, remedies, obligations or
      liabilities.




(f)           Governing
      Law. This Agreement shall be governed by and construed in accordance with the
      laws of the State of New York (without regard to choice of law provisions);
      provided, however, that all matters relating to or involving corporate law
      shall
      be governed by the Delaware General Corporation Law.





(g)           Headings.
      The headings contained herein are for the sole purpose of convenience of
      reference and shall not in any way limit or affect the meaning or interpretation
      of any of the terms or provisions of this Agreement.








[ *Signature
      Page Follows* ]


-3-




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




DATA
              SYSTEMS &
              SOFTWARE INC.By:
            /s/ Sheldon
              KrauseSheldon
              KrauseSecretary




OPTIONEEBy:
            /s/ Shane
              YurmanShane
              Yurman




















-4-





EXHIBIT
      A
      TO STOCK OPTION AGREEMENT





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 under the Non-Plan Stock Option Agreement by and between myself
      and Data Systems & Software Inc. dated as of March 27, 2006:





Date
      of
      grant March
      27, 2006


Exercise
      price per
      share $2.65


Number
      of
      options originally granted 25,000


Number
      of
      options currently 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 Agreement and any applicable legal requirements in connection with the
      issuance of the stock to me pursuant to the Agreement.





Optionee
                (Signature)
            Social
                Security Number________________________Please
                print nameDate
            Address