[COMMTOUCH LOGO]


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To: Compaq Financial Services Corporation                     December 19, 2001
Attn: Rick Steffey and Gary Silverman
                                                              BY FAX
                                                              (908-898-4191)


Re: Settlement of Lease Issues

This  is to  document  the  principles  under  which  a more  formal  settlement
agreement will be prepared and signed by Compaq Financial  Services  Corporation
("Compaq"), Commtouch Inc. and Commtouch Software Ltd.

1.       In resolution of all outstanding and future claims of Compaq under that
         certain Master  Agreement(s) No. 100975 and/or No. 100956 and Schedules
         1 - 4 issued  thereunder  between Compaq and Commtouch Inc.,  Commtouch
         Inc.  shall pay to Compaq the sum of  $220,000 in two  installments  as
         follows: a) $110,000 immediately upon signing this letter agreement and
         b) $110,000 on January 11, 2002.

2.       Commtouch  Inc.  and Compaq will jointly  coordinate  the return of the
         equipment that is the subject of Schedules 1 - 4 from Commtouch Inc. to
         Compaq.

3.       On or before  December 28, 2001,  Commtouch  Software Ltd. shall pay to
         Compaq the sum of $110,780  ($22,156 per month) in  liquidation  of all
         past debt under the overseas lease  schedule  entered into by Commtouch
         Software  Ltd. and Compaq (or an affiliate  thereof).  It is understood
         that such amount  represents  five months worth of lease  payments that
         are currently outstanding.

4.       Commtouch  Software  Ltd.  shall  issue  Warrants  for the  purchase of
         200,000  ordinary shares in Commtouch  Software Ltd. This issuance will
         take place on or before January 11, 2002.

Please sign below and return a copy of this to me by fax at 650-864-2006.

Thank you,

Avner Amram, COO
On behalf of Commtouch Inc. and Commtouch Sotware Ltd.

Compaq Financial Services Corporation

By: Gary Silverman

U.S. Office:                                               International Office:
2029 Stierlin Court                             6 Hazoran Street (P.O. Box 8511)
Mountain View, CA 94043                                    Poleg Industrial Park
Tel: 650-864-2290                                         Netanya, Israel  42504
Fax: 650-864-2006                         Tel: 972-9-8636888  Fax: 972-9-8636863