An increasingly controversial competition between Italy and South Korea for a $1 billion contract to sell the Israeli air force an advanced trainer is set to heat up with a Seoul delegation arriving in December dangling potential deals worth $5 billion.

The Israeli Defense Ministry is expected to decide early next year whether it's going to choose Korea Aerospace Industries' T-50 Golden Eagle or the M-346 Master built by Italy's Alenia Aermacchi to replace the air force's Vietnam War-era Douglas A-4 Skyhawks.

The contest has taken bizarre twists in recent months. At one point, it looked like the T-50 was the front-runner for the purchase of 25-30 supersonic jet trainers. But a few weeks ago, the South Koreans complained that Israel had initialed a preliminary agreement with Italy, which, if it went ahead, was expected to be part of what the Haaretz daily termed "a wide-ranging trade deal" between the two countries.

"The air force has examined the two competing planes and submitted detailed reports about them," the newspaper reported. "The deciding factor will apparently be the deal's economic ramifications."

Amos Harel, one of Israel's leading defense writers, reported in Haaretz that six months ago Defense Ministry Director General Udi Shani had indeed signed a preliminary deal with his Italian counterpart.

"The document, which was formulated according to demands submitted by Israel, expanded the deal beyond its original framework," Harel observed.

Italy reportedly pledged, if Israel signed with Alenia Aermacchi, "the two sides would sign additional deals worth more than $1 billion."

These would include joint development of satellite projects, probably involving state-owned Israel Aerospace Industries, and the sale of unmanned aerial vehicles, an Israeli specialty, to Italy.

The Jerusalem Post recently reported that the Rome government was discussing with Israel's Defense Ministry about a possible barter deal with Italy, providing it with two AWACs aircraft from IAI in exchange for the M-346 deal.

But now KAI has come up with a long-term package deal to persuade the Israelis to go for the T-50. That includes potential sales of $5 billion for Israel's defense industry, which because of recent budget cuts is increasingly reliant on exports to keep production lines running.

"KAI alone has offered Israel more than $1 billion in industrial cooperation if its aircraft is chosen," The Jerusalem Post reported Sunday. "The remaining deals are expected from the South Korean government."

"Potential cooperation could be on the T-50, our helicopters and other programs," the Post quoted Enes Park, KAI's executive vice president for marketing, as saying.

Park also said KAI is having talks with IAI, flagship of Israel's defense sector, and Elbit Systems, one of the world's largest defense electronics manufacturers, about joint ventures that could involve lucrative deals for Israeli companies.

He said Seoul had been surprised that the Italian government had offered the Israelis an inducement package even before the Request for Proposal had been issued.

The RFP, a mandatory stage in a tender, had been scheduled for the summer but has been postponed until early 2012.

"This is against international standards," Park charged.

Italy had been seen as a front-runner because of Israeli Prime Minister Binyamin Netanyahu's close relations with Prime Minister Silvia Berlusconi. But Berlusconi's resignation last week amid a welter of scandals could undermine the Italian position regarding the jet trainer contract.

Italian hopes took another hit Nov. 19 when an M-346 crashed into the Persian Gulf soon after takeoff from the emirate of Dubai where it had participated in the prestigious air show.

The pilot and co-pilot ejected safely. The cause of the accident is being investigated.

Meantime, KAI has garnered considerable support among Israel's defense companies, largely due to the fat contracts Seoul is offering if the T-50 is selected.

Seoul has also indicated that if Israel buys the Italian trainer, all military procurement deals between the Jewish state and South Korea would be scrapped, Israel's media says.

Current defense deals between the two are worth some $280 million a year to Israel.

Seoul has shown keen interest in acquiring the Iron Dome anti-rocket system built by Rafael Advanced Defense Systems.

Israel is keen to export this and other systems such as IAI's high-altitude anti-ballistic Arrow and the medium-range David's Sling system being developed by Rafael.