EXHIBIT 4.9

EMPLOYMENT AGREEMENT

This
EMPLOYMENT AGREEMENT (the Agreement) is made as of the 1st day of
May, 2002, by and between Philippe Szwarc (the Executive) and Arel
Communications and Software Inc., a corporation incorporated under the laws of
the State of Delaware (the Corporation).

W I T N E S
S E T H:

WHEREAS,
the Corporation desires to employ the Executive, and the Executive desires to
accept such employment, under the terms and conditions of this Agreement.

NOW,
THEREFORE, for and in consideration of the premises and the mutual covenants
and agreements herein contained, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

1.          Employment.  The Corporation hereby employs
the Executive, and the Executive hereby accepts employment, to serve in such
capacity as the Board of Directors of the Corporation (the Board) may
determine from time to time under the terms and conditions set forth
herein.  During the Term (as defined
herein), the Executive agrees to serve, without additional compensation, in one
or more executive positions of any affiliate or subsidiary of the Corporation,
including as chief executive officer of Arel Communicaitons and Software Ltd.
(the Parent), the Corporations parent company (collectively, the Arel
Companies).

2.          Term.  Subject to Section 7 below,
the Executive shall be employed hereunder for a period of one year commencing
on May 1, 2002 and ending on April 30, 2003 (the Term).  In the event that neither the Corporation
nor the Executive gives notice of non-renewal by ninety (90) days before the
final day of the Term, this Agreement will automatically be renewed and the
Term extended for an additional twelve (12) month period.Notice by either party of its intention
not to renew the Agreement shall not be considered as termination as described
in Section 7 below.

3.          Duties.  During the Term, (i)  the Executive shall report to the Board and
perform such duties and responsibilities commensurate with his positions that
the Board may determine from time to time or as are requested of the Executive
by the Board and (ii) the Executive will 
serve as chief executive officer of the Parent, and in such capacity, he
shall, in addition, report to the board of directors of the Parent and perform
such duties and responsibilities as are requested of the Executive by the board
of directors of the Parent.  The
Executive shall devote all of his working time and attention to the business
and affairs of the Corporation and the Parent and shall use his best efforts,
skills and abilities in his diligent and faithful performance of his duties and
responsibilities hereunder.  During the
Term, the Executive shall not engage in any other business activities,
excluding passively managing his personal investments with no operational
involvement on the part of the Executive, or hold any office or position,
regardless of whether any such activity, office or position is pursued for
profit or other pecuniary advantage, without the prior consent of the Board.
Executive acknowledges and agrees that he may be required to travel within and
outside of the United States to perform his duties hereunder.



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4.          Compensation and Related Matters.  As
full compensation for the Executives performance of his duties and
responsibilities hereunder during the Term, the Corporation shall pay the
Executive the compensation and provide the benefits set forth below:

a.          Base
Salary.  The Corporation shall pay
the Executive an annual salary (the Base Salary) of one hundred fifty
thousand dollars ($150,000), less required deductions. Base
Salary shall be payable in accordance with the customary payroll practices of
the Corporation.

b.          Bonus.  Beginning in the year 2003, the Executive
shall be eligible to receive an annual performance-based bonus in the amount of
one hundred thousand dollars ($100,000), less required deductions (the Annual
Bonus).  The Annual Bonus shall be
payable within thirty (30) days from the date the annual consolidated audited
financial statements of the Parent are released.  The Annual Bonus shall be payable provided that the Executive is
still employed by the Corporation as of December 31 of the relevant year and
that the Arel Companies and the Executive achieve certain performance
objectives as mutually agreed upon between the Corporation and the Executive
prior to or at the beginning of the relevant year; said performance objectives
shall bebased on the annual budget as approved by the board of directors of the
Parent.

The
Executive shall be eligible to receive a performance-based bonus in the amount
of fifty thousand dollars ($50,000), less required deductions, provided that
the Executive is still employed by the Corporation as of December 31, 2002 and
that the Arel Companies and the Executive achieve certain performance objectives
during the period of June 1, 2002 through December 31, 2002, as mutually agreed
upon between the Corporation and the Executive by no later than June 30,
2002;  said performance objectives shall
be based on the annual budget as approved by the board of directors of the
Parent.

The
Executive will not be entitled to any bonus under this Section 4b. should this
Agreement and the Executives employment be terminated for cause (as defined
below) prior to the payment of any such bonus.

c.          Company
Car. The Corporation shall make available to the Executive an automobile
for his business and personal use.  The
automobile shall be owned or leased by the Corporation, at its sole discretion,
and shall be registered in the Corporations name during the term of this
Agreement.  The automobile shall be
returned by the Executive to the Corporation upon the termination of the
Executives employment with the Corporation for any reason.  The Corporation shall bear all expenses of
maintaining and operating the automobile, including, without limitation,
insurance, gasoline, maintenance and repairs, up to a maximum monthly amount of
$900. The Executive has the option to convert this benefit into a monthly car
allowance of up to $900, in case the Executive owns or leases his own vehicle,
provided the Executive has presented appropriate receipts for such car
expenses, in accordance with the policies established from time to time by the
Corporation.

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d.          Health
Insurance.  The Corporation will
maintain on behalf of each of the Executive and his wife and children of less
than eighteen (18) years of age health insurance policies (including medical,
dental and vision plans) similar to those maintained on behalf of other senior
employees of the Corporation for as long as Executive is employed by the
Corporation.

e.          Life
Insurance.  The Corporation shall apply for and use
its best efforts to obtain a two million dollar ($2,000,000) life insurance
policy on the life of Executive designating Executive or Executives spouse
and/or children as beneficiary (the Policy) similar to those maintained on behalf of other senior employees of the
Corporation, provided the cost to the Corporation does not exceed five hundred dollars ($500) per
month.; the Corporation shall
maintain the Policy for as long as Executive is employed by the Corporation.

f.          Sick
Leave.  The
Executive shall be entitled to sick leave in accordance with the Corporations
standard practices for senior employees of the Corporation.

g.          Vacation.  The Executive shall be
entitled to twenty working days annual paid vacation, which will be accrued in
accordance with the Corporations vacation policy.  The Executive may schedule the vacation as he elects, subject to
the Corporations business needs.

5.       [Reserved.]

6.       Expenses.  The Executive shall be
reimbursed for reasonable and necessary out-of-pocket expenses incurred on the
Corporations behalf upon presentation of appropriate receipts and in
accordance with the policies established from time to time by the Corporation.

7.       Termination. 
Unless otherwise mutually agreed to by the parties, this Agreement and
the Executives employment shall terminate:

a.            Upon the Executives death.

b.            Upon the Executive being unable to perform
his duties and responsibilities hereunder due to his disability (as defined
below), incarceration, court injunction or other unforeseen circumstances not
related to the Corporations actions. 
For purposes of this Agreement, the term disability shall mean that
the Executive has been unable to perform the duties and responsibilities
required of him hereunder due to a physical and/or mental disability for a
period of ninety (90) consecutive days or one hundred twenty (120) non-consecutive
days during any twelve (12) month period. 
During such period of disability, to the extent that he is
physically and mentally able to do so, he shall furnish information and
assistance to the Corporation
and the Executive shall continue to
receive the Base Salary provided that he assigns to the Corporation any
Corporation-paid insurance benefits that he receives, such as short term
disability or workers compensation, during such period; provided, however, that
the amount assigned shall not exceed the Base Salary for any month.

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c.          Upon written notice of the Corporation of
the existence of cause.  For purposes of
this Agreement, the term cause will be defined to include matters such as (i)
a determination by the Corporation, in the reasonable judgement of the Board,
that the Executive has engaged in gross misconduct; (ii) the prosecution of the
Executive for any felony whatsoever, or any other criminal act involving moral
turpitude or affecting the Corporation or the Arel Companies; (iii) any failure
to carry out a directive of the Board or the board of directors of the Parent
which involves the business of the Corporation or the Parent which
failure continues after seven (7) days written notice of such failure; (iv) embezzlement or intentional misuse of
funds of the Corporation, the Parent or any of the Arel Companies; (v) falsification
of records or reports; (vi) ownership,
directly or indirectly, of an interest in a person or entity in competition
with the products or services of the Corporation, the Parent or any of the Arel
Companies, including those products or services contemplated in a plan adopted
by the Board or the board of directors of the Parent; provided, however,
that the Executive may own, directly
or indirectly, solely as an investment, securities of any entity which are
traded on any national securities exchange if Executive owns in the aggregate, directly or indirectly, less
than three percent (3%) of any class of securities of such entities at any time; (vii) any breach of the Executives
fiduciary duties or duties of care to the Corporation, the Parent or any of the
Arel Companies; (viii) any material breach of this Agreement by the Executive;
(ix) any breach of Sections 9, 10 or 11 hereof; (x) any conduct materially
detrimental to the Corporation, the Parent or any of the Arel Companies; and
(xi) any other act or omission that constitutes cause under the laws of any
jurisdiction in which the Corporation or the Parent conducts its business at
the time of such act.

d.          If the Executives employment is terminated
pursuant to paragraph 6a., b., or c., then, unless the parties otherwise
mutually agree, in full satisfaction of the Corporations obligations under
this Agreement, the Executive, his beneficiaries or estate, as appropriate,
shall be entitled to receive earned but unpaid Base Salary provided for herein up to and including the effective date
of termination, prorated on a daily basis. 
In addition, the Executive shall cooperate with the Corporation to assist the integration
into the Corporations organization
of the person or persons who will assume the Executives responsibilities.

e.          Upon
at least three (3) months written notice (the Notice Period) by the
Corporation (it being understood that the Corporation may provide such notice
at any time without cause) . During the Notice Period, at the
option of the Corporation,
Executive shall continue to
perform his duties as set forth herein or remain absent from the premises of
the Corporation and the Arel Companies. In addition, Executive shall cooperate with the Corporation to assist the integration into the Corporations organization of the
person or persons who will assume the Executives
responsibilities. During the Notice Period, Executive shall continue to
receive his compensation pursuant to Section 4 above.

f.          Upon
at least three (3) months written notice (the Corporation Notice Period) by
the Executive (it being understood that the Executive may provide such notice
at any time). During the Corporation Notice Period, at the option of the Corporation, Executive shall continue to perform his duties as set forth
herein or remain absent from the premises of the Corporation and the Arel
Companies. In addition, Executive shall
cooperate with the Corporation to
assist the integration into the Corporations
organization of the person or persons who will assume the Executives responsibilities. During
the Corporation Notice Period,
Executive shall continue to receive his compensation pursuant to Section 4
above.

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8.          Return of Proprietary Information. In the event of any termination of this
Agreement, by the Corporation or the Executive, and whatever the reason, the
Executive will promptly deliver to the Corporation all documents, data, records
and other information pertaining to his employment by the Corporation and other
responsibilities hereunder, including any Proprietary Information (as defined
below) or Company Intellectual Property (as defined below), and the Executive
will not intentionally take with him any documents or data, or any reproduction
or excerpt of any documents or data, containing or pertaining to his employment
by the Corporation or other responsibilities hereunder or any Proprietary
Information (as defined below) or Company Intellectual Property (as defined
below).

9.          Confidentiality; Proprietary Information.  The
Executive recognizes and acknowledges that the designs, inventions,
improvements, trade secrets, software systems (including specifications,
programs and documentation), hardware, methods, data, developments, and works
of authorship, which the Corporation or the Parent or the Arel Companies uses,
owns, plans or develops (whether for their own use or for use by their
clients), and the Corporations, the Parents and the Arel Companies business
plans, marketing plans and customer lists, are confidential and are the
property of the Corporation or the Parent or the Arel Companies (hereinafter
Proprietary Information).  Proprietary
Information does not include information that (a) is now, or hereafter becomes,
through no act or failure to act on the part of Executive, generally known to
the public; or (b) is required to be disclosed by a court order or a
governmental agency.

The
Executive agrees that, except as directed by the Corporation, and in the
ordinary course of the business of the Corporation, the Executive will not
during or after the term of this Agreement or the Executives employment with
the Corporation disclose to any person or entity or use, directly or indirectly
for Executives own benefit or the benefit of others, any Proprietary Information,
or permit any person to examine or make copies of any documents which may
contain or be derived from Proprietary Information.

The
Executive agrees that the provisions of this paragraph shall survive the
termination of this Agreement and Executives employment with the Corporation.

10.          Intellectual
Property Rights.

a.            For
purposes of this Agreement, Intellectual Property means the following items
of intangible and tangible property:

(i)        Patents,
whether in the form of utility patents or design patents and all pending
applications for such patents;

(ii)       Trademarks,
trade names, service marks, designs, logos, trade dress, and trade styles,
whether or not registered, and all pending applications for registration of the
same;

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(iii)      Copyrights
or copyrightable material, including but not limited to books, articles and publications, whether or
not registered, and all pending applications for registration of the same;

(iv)      Inventions,
research records, trade secrets, confidential information, product designs,
engineering specifications and drawings, technical information, formulae,
customer lists, supplier lists and market analyses;

(v)       Computer
programs, including, without limitation, computer programs embodied in
semiconductor chips or otherwise embodied, and related flow-charts, programmer
notes, updates and data, whether in object or source code form; and

(vi)      Semiconductor
chip designs, whether or not registered as mask works or topographies.

b.         The
Executive hereby assigns to the Corporation by way of future assignment all
Intellectual Property, originated, conceived, written or made by the Executive
during the term of this Agreement, related to his employment with the
Corporation, which is in any way connected to the products or services of the
Corporation, the Parent or the Arel Companies, including those products or
services contemplated in a plan adopted by the Board or the board of directors
of the Parent.

c.         In
furtherance of the foregoing Sections 10a. and 10b., the Executive agrees that
all fruits of the Executives work in connection with the business of the
Corporation, the Parent or the Arel Companies, including all Intellectual
Property and future products (hereinafter referred to as an Invention) which
are invented or developed by the Executive during the term of his employment
with the Corporation shall be wholly-owned by the Corporation, and the
Corporation shall be entitled to deal therewith as it desires and register the
Invention in its name or in the name of an Arel Company.  The duty of confidentiality in Section 9
above shall also apply to all Company Intellectual Property and to any Inventions.

d.         Upon
request, the Executive will execute any instrument required to vest in the
Corporation or an Arel Company complete title and ownership to any Company
Intellectual Property or Invention.  The
Executive will, at the request of the Corporation, execute any necessary
instrument to obtain legal protection in the United States, Israel, and other
foreign countries for Company Intellectual Property or Inventions and for the
purposes of vesting title thereto in the Corporation or an Arel Company, all at
the Corporations expense and without any additional compensation of any kind
to the Executive.  The Executive
irrevocably appoints the Corporation as his attorney in his name and on his
behalf to execute all documents and do all things required in order to give
full effect to the provisions of this Section 10.

11.          Competitive
Activity. During the term of this Agreement and for a
period of twelve (12) months from the date of termination of this Agreement by
the Executive or by the Corporation
(the Termination Date), the Executive will not directly or indirectly:

a.          carry
on or hold, directly or
indirectly, an interest in any company, venture, entity or
other business which competes
with the products or services of the Corporation, the Parent or any of the Arel
Companies, including those products or services contemplated in a plan adopted
by the Board or the board of directors of the Parent (a competing business) (including,
without limitation, as a shareholder); provided, however, that the Executive may own, directly or
indirectly, solely as an investment, securities of any entity which are traded
on any national securities exchange if Executive
owns in the aggregate, directly or indirectly, less than three percent
(3%) of any class of securities of such entities at any time;

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b.          solicit,
canvass or approach or endeavor to solicit, canvass or approach any person who,
to his knowledge, was
provided with services by the Corporation, the Parent or an Arel Company at any
time during the twenty four (24) months immediately prior to the Termination
Date, for the purpose of offering services or products which compete with the
services or products supplied by the Corporation, the Parent or an Arel Company
at the Termination Date (restricted services) or request or advise any
such person to withdraw, curtail or cancel its business dealings with the Corporation, the Parent or an Arel Company;

c.          act
as a consultant or employee or officer or in any managerial capacity in a
competing business or supply in competition with the Corporation, the Parent or
an Arel Company restricted services to any person who, to his knowledge, was
provided with services by the Corporation, the Parent or an Arel Company any
time during the twenty four (24) months immediately prior to the Termination
Date; or

d.          employ
any person employed by the Corporation, the Parent or an Arel Company at any
time during the twenty four (24) months immediately prior the Termination Date
or solicit or entice away or endeavor to solicit or entice away any such person
from the Corporation, the Parent or an Arel Company with a view to inducing
that person to leave such employment and to act for another employer in the
same or a similar capacity or to provide similar services to another person.

e.          If
the scope of any restriction contained in this Section 11 is too broad to
permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law, and the Executive hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding
brought to enforce such restriction.

12.          Injunction.
The Executive agrees that it would be difficult to measure damage to the
Corporation, the Parent or an Arel Company from any breach of the Executive of
the promises set forth in Sections 9, 10 and 11 hereof, and that injury to the
Corporation, the Parent or an Arel Company from any such breach would be
extrememly difficult to calculate, and that money damages would therefore be an
inadequate remedy for any such breach. 
Accordingly, the Executive agrees that if he breaches any provision of
Sections 9, 10 and 11 hereof, the Corporation, the Parent or an Arel Company
will be entitled, in addition to all other remedies it may have
at law or in equity, to an
injunction or other appropriate orders to restrain any such breach by Executive
without showing or proving any actual damage sustained by the Corporation, the
Parent or an Arel Company, as the case may be.

13.          Representations
of the Executive. The Executive represents to the Corporation as follows:

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a.          Neither
the execution and delivery of this Agreement nor
the performance by the Executive of his duties and obligations hereunder
violates or will require him to violate or breach any obligation to or
agreement or confidence with any previous employer or third party.

b.          The
Executive has the full right, power and legal capacity to enter into and
deliver this Agreement and to perform his duties and other obligations
hereunder.  This Agreement constitutes
the valid and binding obligation of the Executive and no approvals or consents
of any persons or entities are required for the Executive to execute and
deliver this Agreement or perform his duties and other obligations hereunder.

c.          The
Executive does not have in his possession any Intellectual Property,
confidential information or documents belonging to others, and will not use,
disclose to the Corporation or the Parent, or induce the Corporation or the
Parent to use, any such Intellectual Property, confidential information or
documents during the term of this Agreement.

14.         Successors.  This Agreement and the
Executives performance hereunder are personal to the Executive and shall not
be assignable by the Executive.  This
Agreement shall inure to the benefit of and be binding upon the Corporation and
its successors and assigns.  The Corporation
shall require any successor to all or substantially all of the business and/or
assets of the Corporation, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, to assume and agree to
perform this Agreement in the same manner and to the same extent as the
Corporation would be required to perform if such succession had not taken
place.

15.         Miscellaneous.

a.          Waiver;
Amendment.  The failure of a party
to enforce any term, provision, or condition of this Agreement at any time or
times shall not be deemed a waiver of that term, provision, or condition for
the future, nor shall any specific waiver of a term, provision, or condition at
one time be deemed a waiver of such term, provision, or condition for any
future time or times.  This Agreement
may be amended or modified only by a writing signed by both parties hereto.

b.          Governing Law; Jurisdiction; No Jury Trial. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without giving
effect to the rules of conflicts of law. 
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

c.          Tax Withholding. 
The Corporation may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

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d.          Paragraph Captions. 
Paragraph and other captions contained in this Agreement are for
reference purposes only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.

e.          Severability. 
Each provision of this Agreement is intended to be severable.  If any term or provision hereof is illegal
or invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remainder of this Agreement.

f.          Integrated Agreement. 
This Agreement constitutes the entire under-standing and agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements, understandings, memoranda, term sheets,
conversations and negotiations.  There
are no agreements, understandings, restrictions, representations or warranties
between the parties, express or implied, other than those set forth herein or
herein provided for.

g.          Interpretation; Counterparts.  No
provision of this Agreement is to be interpreted for or against any party
because that party drafted such provision. 
For purposes of this Agreement: herein, hereby, hereinafter,
herewith, hereafter and hereinafter refer to this Agreement in its
entirety, and not to any particular subsection or paragraph.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument.

h.          Notices.  All notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand delivery, or by facsimile (with confirmation of
transmission), or by overnight courier, or within five (5) days after posting
if sent by registered or certified mail, return receipt requested, postage
prepaid, in each case addressed as follows:

| | If to the Executive:                 
| | -------------------------------------
| |                                      
| | 105 Seaver Street                    
| | Brookline, Massachusetts             
| | 05445                                
| | Facsimile: (617)- 713-4563           
| |                                      
| | If to the Corporation:               
| |                                      
| | Arel Communications and Software Inc.
| |                                      
| | 1200 Ashwood Parkway, Suite 550      
| | Atlanta, Georgia                     
| | 30338                                
| | Attention:  Chief Executive
  Officer
| | Facsimile: (770)  396-1755          

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| | with copies to:                                 
| | ------------------------------------------------
| |                                                 
| | Arel Communications and Software Ltd.           
| |                                                 
| | 3 Ha-Yarden St.                                 
| | Yavne, Israel                                   
| | 70600                                           
| | Attention:  Chairman of the
  Board of Directors
| | Facsimile: 972-8-943-8106                       
| |                                                 
| | and                                             
| |                                                 
| | Yigal Arnon & Co.                               
| | 1 Azrieli Centre                                
| | Tel Aviv 67021, Israel                          
| | Attention:  David H. Schapiro,
  Adv.           
| | Facsimile:  972-3-608-7714                      

or to such other address as either party
shall have furnished to the other in writing in accordance herewith.

i.          Approvals.  Executive acknowledges that
the validity and effectiveness of this Agreement is subject to the approval of
its terms by the Board, and the audit committee and the board of the Parent and
compliance with such other approvals in accordance with applicable law.

j.          Confidentiality
of Agreement.  Subject to applicable
law, the Executive undertakes to keep the contents of this Agreement
confidential and not to disclose the contents of this Agreement to any third
party without the prior written consent of the Corporation.

IN
WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of
the date first above written.

|AREL COMMUNICATIONS AND SOFTWARE INC.          |                    
|---------------------------------------------- | -------------------
|                                               |                    
|By: /S/ IZHAK GROSS                            | /S/ PHILIPPE SZWARC
|                                               |                    
|Name:     Izhak Gross                          | PHILIPPE SZWARC    
|Title:      Chairman of the Board of Directors
|Date:      4/16/2002                           | Date:     4/15/2002
|                                               |                    
|/s/ Zvi Klier                                  |                    
|                                               |                    
|Zvi Klier                                      |                    
|President                                      |                    

May 1, 2002

Mr. Philippe Szwarc.

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Dear Philippe,

We are pleased to inform
you that further to a meeting of the board of directors of Arel Communications
and Software Ltd. (the Company) held on May 1, 2002, the board of
directors, after having received the approval of the audit committee, has
decided to grant you options (Options) to purchase up to five hundred
thousand (500,000) ordinary shares (Shares) of the Company at an exercise
price of U.S. $0.932 per share (the Exercise Price).

This grant is subject to the terms and conditions set out below:

1.               Issuance
and Vesting of Options

1.1            The
Options are hereby granted to you as of the date hereof and shall vest
according to the vesting schedule below, provided that your employment under
your employment agreement with Arel Communications and Software Inc. (Arel
Inc.), dated as of May 1, 2002 (the Employment Agreement) has not been
terminated as at the relevant vesting date:

|Tranche            | Number of Options | Vesting Date
|------------------ | ----------------- | ------------
|                   |                   |             
|First
  Tranche  | 100,000
  Options | May 1, 2003 
|Second
  Tranche | 100,000
  Options | May 1, 2004 
|Third
  Tranche  | 150,000
  Options | May 1, 2005 
|Fourth
  Tranche | 150,000
  Options | May 1, 2006 

1.2            Accelerated
Vesting. Notwithstanding the foregoing, the vesting date of the Options
will be accelerated as follows:

(a)
In the event of a Change in Control (as defined
below) all Options shall become immediately vested and exercisable in full. Change
in Control means: (1) the acquisition by any person or group, other than by
any affiliates of
the Company, of 50% or more of the voting stock of the Company (other than in
the event of a registered public offering of the securities of the Company); or
(2) a sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the consolidated assets of the Company and
of its subsidiaries other than to any affiliates of the Company.

2.             Transfer
of Options

The Options shall not be transferable other than by will or the
applicable laws of descent and distribution. No transfer of the Options by you,
whether by will or by the  laws of
descent and distribution, shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of the
will and/or such other evidence as the Companys board of directors may deem
necessary to establish the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions of the Options.

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3.             Exercise
Price

Each Option may be exercised in consideration of the payment of the
Exercise Price indicated above.

4.             Period
of Exercise; Vesting

4.1          The
above Options will vest only if at the time of vesting your employment has not been
terminated under your Employment Agreement. Options which are unvested
at the time of termination of your employment under your Employment Agreement will become void and unexercisable
at the time of such termination.  For
the purposes of this Agreement, your employment under your Employment Agreement
shall be deemed to have been terminated upon the circumstances set forth in
Sections 7a. and 7b. of your Employment Agreement, the notification to you of
your discharge in accordance with the terms and conditions as set forth therein
or the delivery by you of your letter of resignation, as the case may be,
irrespective of the effective date of such resignation or discharge.

4.2          Vested
Options may be exercised in whole or in part at any time for a period of five
(5) years from the date of vesting.  Any
Option not exercised within the aforesaid five (5) year period shall lapse and
become void and unexercisable.

4.3          Notwithstanding
Section
4.2 above, in the event that your Employment Agreement has been terminated for
any reason whatsoever, you must exercise Options which have vested within sixty
(60) days from the date of termination of your employment under your Employment
Agreement, provided however, should your employment under your Employment
Agreement be terminated due to your death or disability, vested Options must be
exercised by your estate or legal representative, as the case may be,
within one (1) year after the date of termination; any unexercised Options after such dates, as applicable,
shall lapse and become void and unexercisable;.

5.            Exercise
of Options

5.1          The
Options, or any part thereof, shall be exercisable by your signing and
returning to the Company at its principal office a Notice of Exercise in such
form as may be prescribed by the Company from time to time, together with full
payment in cash, or in such other form that may be acceptable to the Company,
of the exercise price therefor.

5.2          In
order to issue Shares upon the exercise of any of the Options, you hereby agree
to sign any and all documents and to take such further actions as required by
any applicable law and/or the Companys Articles of Association.

5.3          After
a Notice of Exercise has been delivered to the Company, it may not be rescinded
or revised by you.

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5.4          The
Company shall not be required to issue or deliver any certificate or
certificates for Shares purchased upon any exercise of the Options prior to
fulfillment of all the following conditions:

a)          The
completion of any applicable registration or other qualifications of such
Shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body.

b)          The
payment to the Company or the making of arrangements satisfactory to the Board
of Directors of the Company regarding the payment of any taxes of any kind
required by law to be withheld with respect to the Options.

6.            Taxes

Any and all taxes, fees and other liabilities (as may apply from time
to time) in connection with the grant and/or exercise of the Options and the
sale of Shares issued upon the exercise of the Options, will be borne by you
and you will be solely liable for all such taxes, fees and other liabilities.
You are advised to consult with your tax advisor with respect to the
consequences of receiving or exercising the Options.

7.            Adjustments

In the event that the Board of Directors of the Company shall
determine, in its sole discretion, that any extraordinary stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares or other similar corporate event affects the
Shares such that an adjustment is required in order to preserve the intent of
this Agreement, then the Board of Directors of the Company shall adjust any or
all of a) the number and kind of shares subject to outstanding Options, and b)
the exercise price with respect to any outstanding Option and/or, if deemed
appropriate, make provision for a cash payment to you. (For example, in the
event of a stock split in which the number of outstanding Shares is increased,
the number of Shares subject to Options and/or the exercise price therefore
shall be adjusted to maintain the approximate difference (i.e., spread)
between the exercise price and the fair market value of the Shares immediately
prior to such stock split. The foregoing adjustment shall also be made in the
event of a reverse stock split, to preserve the approximate spread
immediately prior to such reverse stock split).

8.            Rights
as a Stockholder

You shall not be, nor have any of the rights or privileges of, a
stockholder of the Company in respect of any Shares purchasable upon the
exercise of an Option unless and until certificates representing such Shares
shall have been issued by the Company to you.

9.            No
Right to Continued Employment

Nothing in the Agreement shall confer upon you any right to be employed
by the Company or to continue in the employ of Arel Inc. or any of the Arel
Companies, or shall interfere with or restrict in any way the rights of Arel
Inc. or any Arel Company to discharge you at any time for any reason
whatsoever, with or without cause (subject to the applicable provisions of your
employment agreement).

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10.            Notices

All notices
and other communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered by hand delivery, or by facsimile (with
confirmation of transmission), or by overnight courier, or within five (5) days
after posting if sent by registered or certified mail, return receipt
requested, postage prepaid, in each case addressed as follows (or to such other
address as either party shall have furnished to the other in writing in
accordance herewith):

|(a) | if to you:                                     
|--- | -----------------------------------------------
|    |                                                
|    | 105 Seaver Street                              
|    | Brookline, Massachusetts                       
|    | 05445                                          
|    | Facsimile:                                     
|    |                                                
|(b) | if to the
  Company:                           
|    | Arel
  Communications & Software Ltd.          
|    | 3 HaYarden
  St.                               
|    | Yavne,
  Israel 70600                          
|    | Fax:
  972-8-943-8106                          
|    | Attention:
  Chairman of the Board of Directors
|    |                                                
|    | with a copy
  to:                              
|    | Yigal Arnon
  & Co.                            
|    | 1 Azrieli
  Center                             
|    | Tel-Aviv,
  Israel 67021                       
|    | Fax: 972-3-608-7714                            
|    | Attention:
  David H. Schapiro, Adv.           

11.             Amendment

All amendments and other modifications hereof shall be in writing and
signed by the Company and you. The delay or failure on the part of any party
hereto to insist, in any one instance or more, upon strict performance of any
of the terms or conditions of this Agreement, or to exercise any right or
privilege herein conferred shall not be construed as a waiver of any such
terms, conditions, rights or privileges but the same shall continue and remain
in full force and effect.

12.             Governing
Law

The laws of the State of Israel shall govern the interpretation,
validity and performance of the terms of this Agreement, without regard to the
principles of conflicts of laws. Any disputes arising hereunder shall be
adjudicated exclusively in the courts of Tel Aviv-Jaffa.

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Please indicate your
consent to the above terms by signing this letter and returning it to the Company.

Sincerely,

Arel Communications and Software Ltd.

|By: | /S/IZHAK GROSS |  | Date: | 1/5/2002
|--- | -------------- |  | ----- | --------
|    |                |  |       |         

I, the undersigned, confirm that the contents of this letter are
acceptable and agreed to by me.

|By: | /S/PHILIPPE SZWARC |  | Date: | 1/5/2002
|--- | ------------------ |  | ----- | --------
|    |                    |  |       |         

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