Document:

EXHIBIT 10.5

                             On SmartServ Letterhead

Mr. Timothy G. Wenhold
4031 Mill Road
Collegeville, PA 19426

Dear Tim:

            The purpose of this letter agreement is to confirm the amendment to
your Employment Agreement of March 12, 2004. (Capitalized terms not defined
herein shall have the meanings set forth in the Employment Agreement.)

            Your Base Salary for the 2005 fiscal year will be $195,500 per
annum.

            Your Bonus Compensation for the 2005 fiscal year will be based on
            the following:

            Successful integration of KPCCD - 15% of Base Salary; Successful
            introduction of Uphonia "brand" and equipment - 15% of Base Salary;
            and Attainment of cash flow break even or better - 35% of Base
            Salary

            The determination of the first two bonus items will be based on
            specific parameters to be determined by the Compensation Committee
            and the third item will be based on the actual results for fiscal
            year 2005.

            Please sign below to signify your agreement.

                                   Sincerely,

                                   /s/ Paul J. Keeler
                                   ------------------
                                   Paul J. Keeler
                                  Chairman of the Board

Agreed and accepted:

/s/ Timothy G. Wenhold
----------------------
Timothy G. WenholdTHIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

      THIS AGREEMENT  ("Agreement")  is signed on May 15, 2005,  effective as of
the  1st  day of  January,  2005  and is  entered  into  by  and  among  Arotech
Corporation,  a Delaware  corporation  ("Arotech"),  and Electric  Fuel (E.F.L.)
Limited, an Israeli company ("EFL" and together with Arotech,  the "Companies"),
and Mr. Robert S. Ehrlich, Israel I.D. Number 303673487 (the "Executive").

      WHEREAS,  the  Companies  and the  Executive  entered  into an Amended and
Restated  Employment  Agreement dated as of October 1, 1996 and a Second Amended
and  Restated  Employment  Agreement  dated as of January 1, 2000,  as  extended
(together,  the "Original  Agreement")  formalizing the terms of the Executive's
employment with the Companies;

      WHEREAS,  the Executive is within one year of the minimum age set forth in
his existing employment agreement for retirement;

      WHEREAS,   the  Companies  and  the  Executive  now  wish  to  extend  the
Executive's  employment  and to amend and restate the Original  Agreement in its
entirety in accordance with the terms of this Agreement;

      NOW,  THEREFORE,  in  consideration  of the  respective  agreements of the
parties contained herein, the parties agree as follows:

1.    Term.

The term of the  Executive's  employment  under this Agreement  shall be for the
period  commencing  on January 1, 2005,  and ending on  December  31,  2007 (the
"Initial  Term"),  provided,  however,  that the term of this Agreement shall be
automatically  extended  for  additional  terms of one (1) year each  (each,  an
"Additional  Term") upon the end of the Initial Term and each  Additional  Term,
unless either the Executive or both Companies shall have given written notice to
the other at least one  hundred  twenty days (120) days prior  thereto  that the
term  of  this  Agreement  shall  not  be so  extended  (a  "Non-Renewal").  The
provisions of this Agreement shall apply to the relationship between the parties
hereto retroactively as if this Agreement were signed on the commencement of the
Initial Term.

2.    Employment.

(a)   The  Executive  shall be employed as the Chairman of the Board,  President
      and Chief  Executive  Officer of Arotech.  The Executive shall perform the
      duties,   undertake  the   responsibilities  and  exercise  the  authority
      customarily  performed,  undertaken and exercised by persons situated in a
      similar executive capacity in publicly-held United States corporations and
      their Israeli subsidiaries.  The Executive shall exercise his authority in
      a  reasonable  manner and shall  report to the Board of  Directors of each
      Company (each a "Board").

(b)   Excluding  periods of vacation and sick leave to which the Executive shall
      be entitled,  the Executive agrees to devote the attention and time to the
      businesses  and  affairs  of  the  Companies  required  to  discharge  the
      responsibilities  assigned to the  Executive  hereunder.  The  Executive's
      duties shall be in the nature of  management  duties that demand a special
      level of loyalty and  accordingly  the Israeli Law of Work Hours and Rest,
      5711 - 1951 shall not apply to this Agreement.

                                     - 1 -
<PAGE>

(c)   While the Executive is employed by the Companies hereunder,  Arotech shall
      use its best  efforts to cause the  Executive  to be elected to, and if so
      elected the Executive  shall serve on, the Board of Arotech as a member of
      such  Board,  and shall  cause the  Executive  to be  elected  to, and the
      Executive shall serve on, the Board of EFL as a member of such Board.

(d)   Each Company will use its reasonable  best efforts to obtain,  and to keep
      in place at all times  that the  Executive  is a  director  or  officer of
      either  Company,  a directors and officers  liability  policy covering the
      Executive  in an amount  and  otherwise  containing  terms and  conditions
      consistent with past practices.

(e)   The  Executive  agrees  to  serve  on  the  board  of  directors  of  such
      subsidiaries of the Companies as the Board may reasonably request.

3.    Base Salary, Bonus and Financial Planning Allowance.

(a)   The  Companies  agree to pay or cause to be paid to the  Executive  a base
      salary at the rate of US $23,750  per month  during the first year of this
      Agreement,  US $25,000 per month during the second year of this Agreement,
      and US $26,500 per month during the third year of this Agreement,  payable
      in U.S.  Dollars  or in the  currency  of  Israel  (as  determined  by the
      Representative  Rate of the U.S.  Dollar  published  by the Bank of Israel
      immediately prior to the date of payment of each installment  thereof), or
      such  larger  amount  as the Board  may in its sole  discretion  determine
      following a review which shall be conducted by the Board by not later than
      March 31 of each year, such larger amount to take effect  retroactively to
      the January 1 immediately  preceding such review (hereinafter  referred to
      as the "Base Salary"). Notwithstanding such review, on each anniversary of
      the effective  date of this  Agreement,  the Base Salary shall be adjusted
      upward  in an  amount  equal  to  the  official  anticipated  net  Israeli
      inflation rate as published by the Israeli Central Bureau of Statistics in
      the month of December immediately preceding such anniversary, in each case
      for the year immediately  following such anniversary,  as adjusted for any
      changes in the value of the New Israeli  Shekel  against the U.S.  Dollar.
      Such Base Salary shall be payable in equal monthly installments.

(b)   The  Companies  agree to pay or cause to be paid to the  Executive on each
      anniversary of this Agreement or as soon  thereafter as may be possible in
      order to determine the relevant results of the Companies, an annual bonus,
      in an amount of not less than 35% of the Executive's annual Base Salary as
      then in effect for the year preceding such anniversary, as follows:

      (i)   If, as of such  anniversary,  the Companies shall have attained 120%
            of the  Companies'  Budgeted  Number (as defined below) for the year
            preceding such anniversary, then Executive's bonus shall be equal to
            90% of Executive's annual Base Salary as then in effect for the year
            preceding such anniversary;

      (ii)  If, as of such  anniversary,  the Companies shall have attained more
            than 80% but less than 120% of the  Companies'  Budgeted  Number (as
            defined  below),  then  Executive's  bonus  shall be  calculated  as
            follows:

                                     - 2 -
<PAGE>

                  B = (S x 35%) + (N-80)/40 x (S x 55%)

                  Where:

                  B = The amount of Executive's annual bonus, as a percentage of
                  Executive's Base Salary; and

                  N = The  percentage of the Budgeted  Number (as defined below)
                  that  was  attained  by  the  Companies  in  the   immediately
                  preceding fiscal year; provided,  however, that N is more than
                  80 and less than 120;

                  S = Executive's Base Salary.

For the purposes of this Section 3(b), the Budgeted Number shall be the budgeted
results of the Companies as mutually agreed by the Boards and Executive prior to
the end of each fiscal year for the fiscal year designated in such budget.

(c)   In addition,  the  Companies  shall pay  Executive an amount of $10,000 on
      each anniversary of this Agreement to cover  Executive's tax and financial
      planning expenses. The Companies acknowledge that the Executive is owed an
      amount of $30,000 in connection with tax and financial  planning  expenses
      from previous years.

(d)   To the maximum  extent  permitted by law,  all  payments to the  Executive
      hereunder  shall  be paid  in U.S.  Dollars.  Subject  to the  immediately
      preceding  sentence,  and subject to the approval of the Executive,  which
      shall not be unreasonably withheld, the Companies, in order to reflect the
      different  duties  of the  Executive  with  respect  to each of them,  may
      allocate  between  themselves  their  obligations to make the payments and
      provide the benefits  specified in this Agreement.  The amount paid to the
      Executive  hereunder by EFL shall be referred to  hereinafter  as the "EFL
      Base Salary";  provided, that in no event shall the EFL Base Salary in any
      year be greater than the Base Salary for that year.

4.    Employee Benefits.

The Executive shall be entitled to the following benefits:

(a)   Manager's Insurance. The Companies will pay to an insurance company of the
      Executive's choice, as premiums for manager's insurance for the Executive,
      an amount  equal to  13.33% of each  monthly  payment  of the Base  Salary
      together with 2.5% of the Base Salary for disability, and will deduct from
      each monthly payment of the Base Salary and pay to such insurance  company
      an amount  equal to 5% of each monthly  payment of the Base Salary,  which
      shall constitute the Executive's  contribution to such premiums.  Upon the
      termination of the Executive's  employment with the Companies for whatever
      reason,   including  without  limitation  termination  for  Cause  or  the
      resignation by the Executive, the right to receive the manager's insurance
      benefits shall be automatically assigned to the Executive.

(b)   Education Fund (Keren  Hishtalmut).  The Companies  will  contribute to an
      education fund of the  Executive's  choice an amount equal to 7.5% of each
      monthly  payment of the Base  Salary,  and will deduct  from each  monthly
      payment  of the Base  Salary  and  contribute  to such  education  fund an
      additional  amount equal to 2.5% of each such monthly  payment of the Base
      Salary.  Upon  the  termination  of the  Executive's  employment  with the
      Companies for whatever reason,  including without  limitation  termination
      for Cause or the  resignation by the  Executive,  the right to receive any
      amounts in such fund shall be automatically assigned to the Executive. All
      education fund  contributions or imputed income made under this Section in
      excess of the  statutory  exemption  shall be  tax-effected  such that the
      amount of contribution  net of any taxes and  withholding  (including such
      amounts in respect  of  payments  pursuant  to this  sentence)  equals the
      percentages specified herein.

                                     - 3 -
<PAGE>

(c)   Vacation.  The Executive  shall be entitled to an annual  vacation at full
      pay equal to 24 work days.

      Vacation days may be  accumulated  and may, at the  Executive's  option or
      automatically  upon  termination,  be converted  into cash  payments in an
      amount equal to the  proportionate  part of the Base Salary for such days;
      provided,  however,  that if the Executive  accumulates  more than two (2)
      times his then current annual  entitlement  of vacation days,  such excess
      shall be  automatically  converted  into the right to receive  such a cash
      payment in respect of such  excess.  Payments  to which the  Executive  is
      entitled  pursuant to this Section 4(c) shall be made  promptly  after the
      Executive's request therefor.

(d)   Sick Leave.  The Executive shall be entitled to 30 days of fully paid sick
      leave; provided, however, that the Executive shall not be entitled to sick
      leave payment to the extent he is already covered by manager's  insurance.
      Sick leave may be  accumulated  and may,  at the  Executive's  option,  be
      converted into cash payments in an amount equal to the proportionate  part
      of the Base  Salary  for such days.  Payments  to which the  Executive  is
      entitled  pursuant to this Section 4(d) shall be made  promptly  after the
      Executive's request therefor.

(e)   Automobile.  Every three years,  the Companies shall make a new automobile
      available  to the  Executive  during  the  term  of this  Agreement.  Such
      automobile  shall be of a high quality  comparable  to, but not less than,
      that of a current  (2004,  with  respect to the Initial  Term) model Volvo
      S-80, to other cars and shall be subject to the approval of the Executive,
      which shall not be unreasonably  withheld. The Executive shall be entitled
      to use the automobile for his personal and business  needs,  so long as he
      does not allow anyone who would not be covered by the Companies' insurance
      to drive it. The  Companies  shall pay all  expenses  of  maintaining  and
      operating the  automobile.  All expense  reimbursements  or imputed income
      made  under this  Section  shall be  tax-effected  such that the amount of
      reimbursement  received by the Executive net of any taxes and withholdings
      (including such amounts in respect of payments  pursuant to this sentence)
      equals the expense incurred.

(f)   Recuperation Payments (D'mai Havra-ah). The Executive shall be entitled to
      Recuperation  Payments in accordance with the Companies'  policies for all
      of its management employees, but no less than required by law.

(g)   Benefit  Plans.  The  Executive  shall be entitled to  participate  in all
      incentive,  bonus, benefit or other similar plans offered by either of the
      Companies,  including without  limitation  Arotech's 2004 Stock Option and
      Restricted  Stock Purchase Plan, in accordance  with the terms thereof and
      as determined by the Boards from time to time.

                                     - 4 -
<PAGE>

5.    Expenses.

The Executive shall be entitled to receive prompt  reimbursement of all expenses
reasonably  incurred by him in  connection  with the  performance  of his duties
hereunder. Without limiting the generality of the foregoing, the Companies shall
pay all of the Executive's  expenses in the use of telephones for the Companies'
businesses.  The Executive  shall be entitled to receive room,  board and travel
reimbursement in connection with the performance of his duties other than at the
principal  executive  office of  either  Company,  as is  customary  for  senior
executives in  publicly-held  United States and Israeli  companies.  All expense
reimbursements  made  under this  Section  shall be  tax-effected  such that the
amount  of  reimbursement  received  by  the  Executive  net of  any  taxes  and
withholdings  (including  such  amounts in respect of payments  pursuant to this
sentence) equals the expense incurred.

6.    Termination.

The Executive's  employment  hereunder shall and/or may be terminated  under the
following circumstances:

(a)   Death. This Agreement shall terminate upon the death of the Executive.

(b)   Disability.  The Companies may terminate the Executive's  employment after
      having  established  the  Executive's  Disability.  For  purposes  of this
      Agreement, "Disability" means a physical or mental infirmity which impairs
      the  Executive's  ability to  substantially  perform his duties under this
      Agreement  which continues for a period of at least one hundred and eighty
      (180) consecutive days.

(c)   Cause.  The Companies may terminate the Executive's  employment for Cause.
      For purposes of this Agreement,  -----  termination for "Cause" shall mean
      and include:  (i) conviction for fraud, crimes of moral turpitude or other
      conduct which reflects on the Companies in a material and adverse  manner;
      (ii) a willful failure to carry out a material  directive of either of the
      Boards, provided that such directive concerned matters within the scope of
      the  Executive's  duties,  was in  conformity  with Sections 2(a) and 2(b)
      hereof,  would  not give the  Executive  Good  Reason  to  terminate  this
      Agreement  and was capable of being  reasonably  and  lawfully  performed;
      (iii) conviction in a court of competent  jurisdiction for embezzlement of
      funds of the Companies;  and (iv) reckless or willful  misconduct  that is
      materially harmful to either of the Companies; provided, however, that the
      Companies may not terminate the Executive for Cause unless they have given
      the Executive (i) written notice of the basis for the proposed termination
      given not more than thirty  (30) days after the  Companies  have  obtained
      knowledge of such basis  ("Companies'  Notice of Termination")  and (ii) a
      period of at least thirty (30) days after the Executive's  receipt of such
      notice in which to cure such basis.

(d)   Good  Reason.  The  Executive  may  terminate  his  employment  under this
      Agreement for Good Reason.  For purposes of this Agreement,  "Good Reason"
      shall mean the occurrence of any of the events or conditions  described in
      subsections (i) through (viii) hereof:

                                     - 5 -
<PAGE>

      (i)   a  change   in  the   Executive's   status,   title,   position   or
            responsibilities  which,  in the  Executive's  reasonable  judgment,
            represents a reduction or demotion in the Executive's status, title,
            position or responsibilities as in effect immediately prior thereto;

      (ii)  a reduction in the Executive's Base Salary;

      (iii) the failure by the  Companies  to  continue  in effect any  material
            compensation   or   benefit   plan  in  which   the   Executive   is
            participating;

      (iv)  the insolvency or the filing (by any party, including the Companies)
            of a petition for the winding-up of either of the Companies;

      (v)   any  material  breach  by the  Companies  of any  provision  of this
            Agreement;

      (vi)  any purported termination of the Executive's employment for Cause by
            the  Companies  which does not comply with the terms of Section 6(c)
            of this Agreement;

      (vii) any movement of either Company's  principal  executive  offices from
            the Jerusalem/Tel Aviv area of Israel; and

      (viii)any  movement of the  location  where the  Executive is generally to
            render  his   services   to  the   Companies   hereunder   from  the
            Jerusalem/Tel Aviv area of Israel;

      provided,  however,  that the Executive  may not terminate his  employment
      under this Agreement for Good Reason unless he has given the Companies (i)
      written  notice of the basis for the proposed  termination  given not more
      than thirty (30) days after the Executive  has obtained  knowledge of such
      basis ("Executive's  Notice of Termination") and (ii) a period of at least
      thirty (30) days after the  Companies'  receipt of such notice in which to
      cure such basis.

(e)   Change in Control.  The Executive may terminate this Agreement if there is
      a "Change  in  Control."  For  purposes  of this  Agreement,  a "Change in
      Control" shall mean any of the following events:

      (i)   the  acquisition  (other than from Arotech in any public offering or
            private  placement of equity  securities) by any person or entity of
            beneficial  ownership of twenty (20%) or more of the combined voting
            power of Arotech's then outstanding voting securities; or

      (ii)  individuals who, as of January 1, 2000, were members of the Board of
            Arotech (the "Original  Arotech  Board"),  together with individuals
            approved by a vote of at least  two-thirds  (2/3) of the individuals
            who were  members of the Original  Arotech  Board and are then still
            members of the Board of Arotech,  cease for any reason to constitute
            at least one-third (1/3) of the Board of Arotech; or

      (iii) approval  by  the  shareholders  of  either  of the  Companies  of a
            complete  winding-up of such Company or an agreement for the sale or
            other  disposition  of all or  substantially  all of the  assets  of
            either of the Companies.

                                     - 6 -
<PAGE>

      The  Executive  shall  give to the  Companies  an  Executive's  Notice  of
      Termination if the Executive  desires to terminate his employment  because
      there has been a Change in  Control,  such  notice to specify  the date of
      such termination  which shall be not less than thirty (30) days after such
      notice is received by the Companies. Any such notice, to be effective with
      respect to any Change in Control,  must be sent no later than  twenty-four
      (24) months after such Change in Control.

(f)   Termination  Date, Etc.  "Termination  Date" shall mean in the case of the
      Executive's  death,  his date of death,  or in all other  cases,  the date
      specified in the Notice of Termination subject to the following:

      (i)   if the  Executive's  employment  is  terminated by the Companies for
            Cause or due to  Disability,  the date  specified in the  Companies'
            Notice of  Termination  shall be at least  thirty (30) days from the
            date the Notice of Termination  is given to the Executive,  provided
            that in the case of Disability the Executive shall not have returned
            to the full-time  performance of his duties during such period of at
            least thirty (30) days;

      (ii)  if the  Executive's  employment  is terminated  for Good Reason,  or
            because  there has been a Change in Control,  the  Termination  Date
            specified in the Executive's Notice of Termination shall not be more
            than  sixty  (60) days from the date the  Notice of  Termination  is
            given to the Companies.

(g)   Termination  at Will.  Subject to the other  provisions of this Section 6,
      the  Executive may  terminate  his  employment  with the Companies for any
      reason  other  than  the  other  reasons   specified  in  this  Section  6
      ("Termination  at Will"),  by giving to the  Companies  written  Notice of
      Termination  specifying the Termination Date, which Termination Date shall
      be at least one hundred and twenty (120) days from the date of such Notice
      of Termination.

7.    Compensation upon Termination.

Upon termination of the Executive's employment hereunder, the Executive shall be
entitled to the following benefits:

(a)   If the Executive's  employment is terminated by the Companies for Cause or
      if the  Executive's  employment is terminated by the Executive  other than
      with either Good Reason,  because there has been a Change in Control,  due
      to  Non-Renewal,  or due to Termination at Will,  then the Companies shall
      pay the  Executive  all amounts of Base Salary and the  employee  benefits
      specified  in  clauses  (a),  (b) and (c) of  Section 4 of this  Agreement
      earned or accrued  hereunder  through the Termination Date but not paid as
      of the Termination Date (collectively, "Accrued Compensation").

(b)   If the Executive's employment by the Companies shall be terminated (1) due
      to Disability,  (2) by the Executive for Good Reason, (3) by the Executive
      because there has been a Change in Control,  (4) by the Executive's death,
      (5) due to  Non-Renewal,  or (6) due to  Termination  at  Will,  then  the
      Executive shall be entitled to the benefits provided below (in addition to
      and not instead of whatever other benefits he may be entitled to by reason
      of operation of law):

                                     - 7 -
<PAGE>

      (i)   The Companies shall pay the Executive (a) all Accrued  Compensation,
            (b) a bonus at a rate of the  higher  of (i)  35%,  or (ii) the rate
            that  would  otherwise  be payable  pursuant  to the  provisions  of
            Section  3(b)  above  for the year in  which  the  Termination  Date
            occurs,  of  Executive's  annual Base  Salary as of the  Termination
            Date,  pro rated  based on the  number  of days in such  year  which
            occurred prior to the Termination Date, and (c) the amounts referred
            to in Sections  4(d) and (e) above,  to the extent earned or accrued
            hereunder  through  the  Termination  Date  but  unpaid  as  of  the
            Termination Date.

      (ii)  the  Companies  shall  pay into the  Trust (as  defined  in  Section
            7(b)(v) below), as a retirement  payment (the "Retirement  Payment")
            and in lieu of any  further  salary for  periods  subsequent  to the
            Termination  Date (except as provided in Section 7(b)(i)  above),  a
            total of $1,625,400 (the parties  acknowledge  that $500,000 of this
            amount has previously been paid into the Trust (the "Pre-Payment")).
            Subject to the  proviso  contained  in Section  7(b)(v)  below,  the
            Retirement  Payment  will vest and be funded  into the Trust in four
            equal  installments as provided in Section 7(b)(iii) below, and will
            be released from the Trust to the Employee as follows:

            (a)   In the event of  termination  due to Change  of  Control,  the
                  amount  of  the  Retirement  Payment  will  be  doubled,  and,
                  notwithstanding the provisions of Section 7(b)(iii) below, all
                  unvested  and/or  unfunded  amounts of the doubled  Retirement
                  Payment  will vest  immediately  and become due and payable on
                  the Termination Date.

            (b)   In the event of  termination  due to Good Reason,  Disability,
                  death or any other termination without Cause by the Companies,
                  all unvested  and/or  unfunded  installments of the Retirement
                  Payment  will,   notwithstanding  the  provisions  of  Section
                  7(b)(iii)  below,  vest immediately and become due and payable
                  on the Termination Date.

            (c)   In the event of termination  due to Non Renewal or Termination
                  at Will, the Employee will be entitled only to that portion of
                  the  Retirement  Payment  that shall have vested or shall vest
                  prior to the  Termination  Date,  which amount will become due
                  and payable on the Termination Date.

      (iii) The installments of the Retirement Payment will vest and (subject to
            the  proviso  contained  in  Section  7(b)(v)  below)  be  funded as
            follows:

            (a)   First  installment  (vests  upon  signing of this  Agreement):
                  $312,500 in cash and $93,750 as a credit from the Pre-Payment;

            (b)   Second installment  (vests on December 31, 2005):  $406,250 in
                  cash;

            (c)   Third  installment  (vests on December 31, 2006):  $406,250 in
                  cash; and

            (d)   Final installment (vests on December 31, 2007):  $406,250 as a
                  credit from the Pre-Payment.

                                     - 8 -
<PAGE>

      (iv)  For  thirty-six  (36) months,  the Companies  shall at their expense
            continue  on  behalf  of  the  Executive  and  his   dependents  and
            beneficiaries  all of the  benefits,  including  without  limitation
            manager's insurance, life insurance, disability, medical, dental and
            hospitalization benefits and use of an automobile,  which were being
            provided to the Executive at the time Notice of Termination is given
            (or, if the Executive  terminates  his employment for Good Reason or
            because a Change in Control has occurred,  the benefits  provided to
            the  Executive  at the time  immediately  preceding  when  such Good
            Reason arose or such Change in Control occurred,  if greater,  or if
            such benefits are being provided after the  Executive's  death,  the
            date  of  his  death),   provided  that  the  Companies'  obligation
            hereunder with respect to the foregoing benefits shall be limited to
            the extent that the Executive  obtains any such benefits pursuant to
            a subsequent  employer's benefit plans; and provided,  further, that
            in the event of a contemplated  Change of Control, an amount in cash
            equal to the  cost of  these  benefits  will be  transferred  to the
            Executive prior to the consummation of such Change of Control.

      (v)   The  Companies  have  previously  established  a rabbi trust for the
            benefit of the Executive  (the "Rabbi  Trust").  The Companies  will
            fund vested amounts of the Retirement Payment into the Trust as they
            vest;  provided,  however,  that a vested  amount will not be funded
            upon vesting if the CFO, the Audit  Committee  and the  Compensation
            Committee  of Arotech  inform the  Executive  in writing and in good
            faith that they  believe  that such  funding  would  jeopardize  the
            Companies' cash position; any such deferred amount will be funded as
            soon as the cash position of the Companies permits such funding, and
            in any event  upon the  Termination  Date.  Once a payment is funded
            into the Trust the risk of gain or loss with respect to such payment
            passes to the Executive.

(c)   The Companies  shall  procure life  insurance on the Executive in order to
      secure the payment of its obligations  arising in the event of termination
      under Section 6(a) hereof. Such insurance shall be payable to the Company,
      which  shall  remain   primarily  liable  for  the  payment  of  all  such
      obligations to the Executive.

(d)   All stock  options that are  unvested  shall vest on  Termination  and all
      Options  shall be  extended  for the  longer of their  term or the term by
      which Arotech director  options are generally  extended upon a director of
      Arotech leaving Arotech's Board of Directors.

As a condition  to  receiving  the  payments  described  in this  Section 7, the
Executive  shall  execute  and  deliver to the  Companies  a release in the form
attached hereto as Exhibit A.

8.    Confidentiality; Proprietary Rights; Competitive Activity.

(a)   Confidentiality.   Executive   recognizes   and   acknowledges   that  the
      technology,   developments,   designs,  inventions,   improvements,  data,
      methods,  trade secrets and works of authorship  which the Companies  own,
      plan  or  develop,   including  without  limitation  the   specifications,
      documentation  and other information  relating to the Companies'  zinc-air
      battery  systems,  and businesses and equipment  related  thereto (in each
      case  whether  for  their  own  use  or  for  use by  their  clients)  are
      confidential  and  are  the  property  of the  Companies.  Executive  also
      recognizes that the Companies' technology, customer lists, supplier lists,
      proposals  and  procedures  are  confidential  and are the property of the
      Companies.  Executive further recognizes and acknowledges that in order to
      enable the Companies to perform services for their clients,  those clients
      may furnish to the Companies  confidential  information  concerning  their
      business  affairs,  property,  methods of operation or other data.  All of
      these materials and information  will be referred to below as "Proprietary
      Information";  provided,  however, that such information shall not include
      any  information  known generally to the public (other than as a result of
      unauthorized disclosure by the Executive).

                                     - 9 -
<PAGE>

(b)   Non-Disclosure.   Executive  agrees  that,   except  as  directed  by  the
      Companies,  and in the  ordinary  course  of  the  Companies'  businesses,
      Executive will not during  Executive's  employment  with the Companies and
      thereafter,  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;  provided,  however,  that the Executive's  duties under this
      Section 8(b) shall not extend to (i) any  disclosure  that may be required
      by law in  connection  with any judicial or  administrative  proceeding or
      inquiry  or (ii)  any  disclosure  which  may be  reasonably  required  in
      connection  with any actions or  proceedings  to enforce  the  Executive's
      rights under this Agreement.  Executive agrees that the provisions of this
      paragraph  shall survive the termination of this Agreement and Executive's
      employment by the Companies.

(c)   Competitive Activity. The Executive undertakes not, directly or indirectly
      (whether as owner,  partner,  consultant,  employee or  otherwise)  at any
      time,  during and for thirty-six (36) months following  termination of his
      employment with the Companies, to engage in or contribute his knowledge to
      any  work or  activity  that  involves  a  product,  process,  service  or
      development  which is then directly (in any material  manner)  competitive
      with the Companies'  zinc-air energy systems and the same as or similar to
      a product,  process,  service or development  specifically  related to the
      Companies'  zinc-air  energy system on which the Executive  worked or with
      respect to which the Executive had access to Proprietary Information while
      with the Companies.  Notwithstanding the foregoing, the Executive shall be
      permitted to engage in the aforementioned proposed work or activity if the
      Companies  furnishes him with written  consent to that effect signed by an
      authorized officer of each Company.

(d)   No  Solicitation.  During the period  specified in 8(c) hereof,  Executive
      will not solicit or encourage  any customer or supplier of either  Company
      or of any group,  division or subsidiary of either  Company,  to terminate
      its  relationship  with  either  Company or any such  group,  division  or
      subsidiary,  and Executive will not,  directly or  indirectly,  recruit or
      otherwise seek to induce any employee of either Company or any such group,
      division or subsidiary  to terminate his or her  employment or violate any
      agreement  with or duty to either  Company or any such group,  division or
      subsidiary.

(e)   Equitable  Relief.  The Executive  agrees that  violations of the material
      covenants in this Section 8 will cause the Companies  irreparable injuries
      and agrees  that the  Companies  may  enforce  said  covenants  by seeking
      injunctive or other  equitable  relief (in addition to any other  remedies
      the Companies  may have at law for damages or  otherwise)  from a court of
      competent  jurisdiction.  In the event such court declares these covenants
      to be too  broad  to be  specifically  enforced,  the  covenants  shall be
      enforced  to the  largest  extent as may be  allowed by such court for the
      Companies'  protection.  Executive  further  agrees  that no breach by the
      Companies of, or other failure by the Companies under this Agreement shall
      relieve the  Executive of any  obligations  under  Sections  8(a) and 8(b)
      hereof.

                                     - 10 -
<PAGE>

9.    Successors and Assigns.

(a)   This  Agreement  shall be binding  upon and shall  inure to the benefit of
      each Company,  its successors and assigns and the Companies  shall require
      any  successor  or assign to  expressly  assume and agree to perform  this
      Agreement  in the same manner and to the same  extent  that the  Companies
      would be required to perform it if no such  succession or  assignment  had
      taken place.  The term the  "Companies"  as used herein shall include such
      successors and assigns.  The term  "successors and assigns" as used herein
      shall mean a corporation  or other entity  acquiring all or  substantially
      all the assets and business of either Company  (including  this Agreement)
      whether by operations of law or otherwise.

(b)   Subject  to Section 16 hereof,  neither  this  Agreement  nor any right or
      interest  hereunder  shall be assignable or transferable by the Executive,
      his beneficiaries or legal representatives,  except by will or by the laws
      of descent and distribution.  This Agreement shall inure to the benefit of
      and be enforceable by the Executive's legal personal representative.

10.   Notice.

For the  purposes  of this  Agreement,  notices  and  all  other  communications
provided  for in the  Agreement  shall be in writing and shall be deemed to have
been duly given when personally  delivered or sent by registered  mail,  postage
prepaid,  addressed to the respective addresses set forth below or last given by
each party to the other. All notices and communications  shall be deemed to have
been  received on the date of  delivery  thereof or on the eighth  business  day
after the mailing  thereof,  except  that  notice of change of address  shall be
effective only upon receipt.

The initial  addresses of the parties for purposes of this Agreement shall be as
follows:

         The Companies:      Arotech Corporation
                             354 Industry Drive
                             Auburn, Alabama 36830
                             Attention: Steven Esses, Executive Vice President

         and                 Electric Fuel Limited
                             Western Industrial Park
                             P.O. Box 461
                             Beit Shemesh 99000
                             Israel

         The Executive:      Robert S. Ehrlich
                             21 Nahal Sorek
                             Ramat Beit Shemesh
                             Israel

                                     - 11 -
<PAGE>

11.   Miscellaneous.

No provision of this Agreement may be modified, waived or discharged unless such
waiver,  modification  or  discharge  is agreed to in writing  and signed by the
Executive and the Companies. No waiver by either party hereto at any time of any
breach by the other  party  hereto of, or  compliance  with,  any  condition  or
provision of this  Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent  time. No agreement or  representations,  oral or otherwise,
express or implied,  with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.

12.   Governing Law; Venue.

This  Agreement  shall be governed by and  construed  and enforced in accordance
with the laws of Israel without  application of any conflicts of laws principles
which would cause the application of the domestic  substantive laws of any other
jurisdiction.  Each of the Executive and the Companies hereby irrevocably waives
any objection it may now or hereafter  have to the laying of venue in the courts
of the State of Israel for any legal suit or action  instituted  by any party to
the Agreement against any other with respect to the subject matter hereof.

13.   Severability.

The provisions of this Agreement shall be deemed  severable,  and the invalidity
or   unenforceability  of  any  provision  shall  not  affect  the  validity  or
enforceability of the other provisions hereof.

14.   Entire Agreement.

This Agreement  constitutes the entire agreement  between the parties hereto and
supersedes  all  prior  agreements,  understandings  and  arrangements,  oral or
written,  between the parties  hereto with respect to the subject  matter hereof
including, without limitation the Original Agreement.

15.   Joint and Several Obligations.

The  obligations  and  liabilities of each Company  hereunder shall be joint and
several with the obligations and liabilities of the other Company hereunder.

16.   Registration Rights.

(a)   If Arotech at any time  proposes to register any of its  securities  under
      the Securities Act of 1933, as from time to time in effect  (together with
      the rules and regulations thereunder,  all as from time to time in effect,
      the  "Securities  Act"),  for its own  account  or for the  account of any
      holder of its  securities,  on a form which would permit  registration  of
      Common Stock of Arotech at the time held or  obtainable  upon the exercise
      of  options,   warrants  or  rights,  or  the  conversion  of  convertible
      securities, at the time held by the Executive ("Registrable  Securities"),
      for sale to the public under the  Securities  Act,  Arotech will each such
      time give notice to the  Executive of its  intention to do so. Such notice
      shall  describe  such  securities  and specify the form,  manner and other
      relevant  aspects of such proposed  registration.  The  Executive  may, by
      written  response  delivered to Arotech within 15 days after the giving of
      any such notice,  request that all or a specified part of the  Registrable
      Securities be included in such  registration.  Arotech will  thereupon use
      its  best  efforts  as  part of its  filing  of such  form to  effect  the
      registration under the Securities Act of all Registrable  Securities which
      Arotech has been so requested to register by the Executive,  to the extent
      required  to permit  the  disposition  (in  accordance  with the  intended
      methods  thereof as  aforesaid)  of the  Registrable  Securities  to be so
      registered.

                                     - 12 -
<PAGE>

(b)   The Executive may, by notice to Arotech  specifying the intended method or
      methods  of  disposition,  given at any time and from  time to time  after
      Arotech has registered any shares of its Common Stock under the Securities
      Act, request that Arotech effect the registration under the Securities Act
      of all  or a  specified  part  of the  Registrable  Securities;  provided,
      however,  that  Arotech  shall not be  required  to effect a  registration
      pursuant to this Section 16(b) unless such registration may be effected on
      a Form S-3 (or any successor or similar Form); and provided, further, that
      each  registration  pursuant to this Section 16(b) shall cover a number of
      Registrable  Shares equal to not less than 2% of the  aggregate  number of
      shares of Arotech Common Stock then outstanding. Arotech will then use its
      best efforts to effect the  registration as promptly as practicable  under
      the Securities Act of the  Registrable  Securities  which Arotech has been
      requested to register by the Executive pursuant to the Section 16(b).

(c)   Notwithstanding  the  provisions  of  Section  16(b),  in the  event  that
      Executive  has requested  pursuant to Section 16(b) that Arotech  effect a
      registration of securities,  and (i) the Board of Arotech  determines that
      it would be  seriously  detrimental  to Arotech  to effect a  registration
      pursuant to Section 16(b), or (ii) the Board of Arotech determines in good
      faith  that  (A)  Arotech  is  in  possession   of  material,   non-public
      information   concerning   an   acquisition,   merger,   recapitalization,
      consolidation,  reorganization  or  other  material  transaction  by or of
      Arotech or concerning pending or threatened  litigation and (B) disclosure
      of such information would jeopardize any such transaction or litigation or
      otherwise  materially  harm Arotech,  then Arotech shall  promptly  notify
      Executive  of  the  occurrence  of  any of  the  events  described  in the
      foregoing  clauses (i) or (ii).  Upon the  occurrence of any of the events
      described in clauses (i) or (ii) hereof, Arotech shall be allowed to defer
      a  registration  of securities  pursuant to Section 16(b) above,  and if a
      registration  statement  had  already  been filed at such time,  Executive
      shall not dispose of his Registrable  Securities  under such  registration
      statement  until  it  is  so  advised  in  writing  by  Arotech  that  the
      registration  of  securities  under  16(b)  may be  effected  or  resumed.
      Notwithstanding  the  foregoing,  any such  deferment  or  prohibition  on
      disposition  shall not be in effect for more than 90 days in any 12 months
      period.

(d)   Arotech shall not be obligated to effect any  registration  of Registrable
      Securities  under Section 16(a) hereof  incidental to the  registration of
      any of its securities in connection with mergers,  acquisitions,  exchange
      offers,  dividend  reinvestment  plans or stock  option or other  employee
      benefit plans.

(e)   Arotech hereby agrees to pay, or cause to be paid, all legal,  accounting,
      printing  and other  expenses  (other  than the fees and  expenses  of the
      Executive's  own  counsel  and  other  than  underwriting   discounts  and
      commissions attributable to the Registrable Securities) in connection with
      each registration of Registrable Securities pursuant to this Section 16.

                                     - 13 -
<PAGE>

(f)   In connection with each registration of Registrable Securities pursuant to
      this  Section  16,   Arotech  and  the  Executive  will  enter  into  such
      agreements,  containing  such terms and  conditions,  as are  customary in
      connection  with public  offerings,  such  agreements to contain,  without
      limitation,  customary  indemnification  provisions,  representations  and
      warranties and opinions and other  documents to be delivered in connection
      therewith, and to be, if requested, with underwriters.

(g)   The  provisions  of this  Section  16 shall be  subject  to any  agreement
      entered into by Arotech,  in good faith, with any underwriter of Arotech's
      securities or any person or entity providing financing to Arotech, in each
      case  containing  reasonable  limitations  on the  Executive's  rights and
      Arotech's obligations hereunder.

(h)   The  provisions  of this Section 16 shall survive the  termination  of the
      other provisions of this Agreement. The rights of the Executive under this
      Section 16 are  assignable,  in whole or in part,  by the Executive to any
      person or other entity acquiring securities of Arotech from the Executive.

(i)   Notwithstanding  anything in the foregoing to the contrary,  the Executive
      shall  not  demand  a  registration  during  the  180  days  following  an
      underwritten public offering of the Common Stock of the Company.

(j)   Without the prior written consent of the underwriters  managing any public
      offering,  for a period  beginning  ten  days  immediately  preceding  the
      effective date of any  registration  statement  filed by the Company under
      the Securities  Act of 1933, as amended,  and ending on the earlier of (i)
      180 days after the effective date of such registration  statement and (ii)
      the end of the shortest period generally applicable to any "affiliate" (as
      defined in the  Securities  Act of 1933,  as  amended) of Arotech who is a
      selling  shareholder  pursuant to such  registration  statement  or who is
      otherwise subject to a lockup provision,  the Executive  (whether or not a
      selling  shareholder  pursuant to such  registration  statement) shall not
      sell or otherwise  transfer any securities of Arotech  except  pursuant to
      such registration statement.

                                     - 14 -
<PAGE>

      IN WITNESS  WHEREOF,  the  Companies  have  caused  this  Agreement  to be
executed by its duly  authorized  officer and the  Executive  has executed  this
Agreement as of the day and year first above written.

AROTECH CORPORATION

By:
   -----------------------------------------
Its:     Executive Vice President and COO

ELECTRIC FUEL (E.F.L.) LIMITED

By:
   -----------------------------------------      ------------------------------
Its:     President and CEO                                 Executive

                                     - 15 -
<PAGE>

                                    Exhibit A

                             FORM OF MUTUAL RELEASE

      This  mutual  release  is  executed  and  delivered  by  and  between  the
undersigned employee of Arotech Corporation,  a Delaware corporation ("Arotech")
and Electric Fuel (E.F.L.)  Limited  ("EFL") and the  undersigned's  successors,
assigns,  executors,  estates and personal  representatives  (collectively,  the
"Executive"),  on the one hand, and Arotech and EFL and each of their respective
affiliates,  agents, successors and assigns (collectively,  the "Companies"), on
the  other  hand.  For  and in  consideration  of the  Executive  receiving  the
compensation  referred  to in  Section  7 of  the  Third  Amended  and  Restated
Employment Agreement effective as of January 1, 2005 and other good and valuable
consideration,  the adequacy and receipt of which are hereby acknowledged by the
Executive and the Companies, the Executive hereby remises,  releases and forever
discharges the Companies,  and the Companies hereby remise,  release and forever
discharge the  Executive,  of and from any and all manner of action and actions,
cause and  causes of  actions,  suits,  debts,  dues,  sums of money,  accounts,
reckonings,  bonds,  bills,  covenants,  contracts,  controversies,  executions,
claims and demands of any kind and nature whatsoever in law or in equity,  known
or unknown, against the other party which ever existed prior to the date hereof,
or may ever have on and after the date hereof with  respect to matters  arising,
and dealings with the other party occurring, prior to the date hereof; provided,
however,  that  nothing  contained  herein  shall be  construed  to release  the
Executive  from any  obligations  to the  Companies  pursuant to the  Employment
Agreement  nor to release the  Companies  from any of their  obligations  to the
Executive pursuant to the Employment Agreement.

         IN WITNESS WHEREOF, the Executive and the Companies have each caused
this Release to be executed as of ______________.

                                       EXECUTIVE

                                       ------------------------------
                                       Name:    Robert S. Ehrlich

                                       AROTECH CORPORATION

                                       By:___________________________
                                       Title:

                                       ELECTRIC FUEL (E.F.L.) LTD.

                                       By:___________________________
                                       Title:

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