SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to
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Commission file number 0-538
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AMPAL-AMERICAN ISRAEL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)

NEW YORK 13-0435685
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

1177 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
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(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (212) 782-2100
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----

The number of shares outstanding of the issuer's Class A Stock, its
only authorized common stock, is 23,951,860 (as of October 31, 1998).

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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Index to Form 10-Q

Page
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Part I Financial Information

Consolidated Statements of Income

Nine Months Ended September 30................................... 1

Three Months Ended September 30.................................. 2

Consolidated Balance Sheets...................................... 3

Consolidated Statements of Cash Flows............................ 5

Consolidated Statements of Changes in Shareholders'

Equity.......................................................... 7

Notes to the Consolidated Financial Statements................... 8

Management's Discussion and Analysis of

Financial Condition and Results of Operations................... 12

Part II Other Information................................................ 18

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME

NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)

REVENUES
Equity in earnings of affiliates ....................................... $ 7,619 $17,504
Manufacturing........................................................... 4,946 8,450
Interest:
Related parties........................................................ 2,699 5,991
Others................................................................. 859 1,979
Rental income........................................................... 5,465 5,480
Realized and unrealized (losses) gains on
investments............................................................ (1,569) 5,750
Other................................................................... 1,838 1,559
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Total revenues..................................................... 21,857 46,713
------- -------

EXPENSES
Manufacturing........................................................... 6,298 9,229
Interest:
Related parties........................................................ 3,440 1,942
Others................................................................. 4,484 5,545
Rental property operating expenses...................................... 2,674 2,256
Loss from impairment of investments..................................... 270 977
Minority interests...................................................... (923) (360)
Other................................................................... 4,895 5,963
------- -------
Total expenses..................................................... 21,138 25,552
Restructuring charge.................................................... - 600
------- -------
Income before income taxes.............................................. 719 20,561
Provision for income taxes.............................................. 1,534 8,663
------- -------

NET (LOSS) INCOME.................................................. $ (815) $11,898
======= =======

Basic EPS
(Loss) earnings per Class A share...................................... $ (.03) $ .50
======= =======

Shares used in calculation (in thousands).............................. 23,885 23,722

Diluted EPS
(Loss) earnings per Class A share...................................... $ (.04) $ .42
======= =======

Shares used in calculation (in thousands).............................. 27,616 27,614

The accompanying notes are an integral part of the consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Unaudited) (Unaudited)
(Note 2)

REVENUES
Equity in earnings of affiliates ....................................... $ 2,310 $ 8,293
Manufacturing........................................................... 1,629 2,164
Interest:
Related parties........................................................ 935 1,666
Others................................................................. 181 751
Rental income........................................................... 1,874 1,773
Realized and unrealized (losses) gains on investments.................. (2,924) 727
Other................................................................... 787 522
------- -------
Total revenues..................................................... 4,792 15,896
------- -------

EXPENSES
Manufacturing........................................................... 2,039 2,494
Interest:
Related parties........................................................ 1,224 650
Other.................................................................. 1,564 1,780
Rental property operating expenses...................................... 941 173
Minority interests...................................................... (390) (149)
Other................................................................... 1,516 2,191
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Total expenses..................................................... 6,894 7,139
------- -------
(Loss) income before income taxes....................................... (2,102) 8,757
(Benefit) provision for income taxes.................................... (200) 4,149
------- -------

NET (LOSS) INCOME.................................................. $(1,902) $ 4,608
======= =======

Basic EPS
(Loss) earnings per Class A share...................................... $ (.08) $ .19
======= =======

Shares used in calculation (in thousands).............................. 23,939 23,767

Diluted EPS
(Loss) earnings per Class A share...................................... $ (.07) $ .16
======= =======

Shares used in calculation (in thousands).............................. 27,616 27,616

The accompanying notes are an integral part of the consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS

September 30, December 31,
ASSETS AS AT 1998 1997
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(Dollars in thousands) (Unaudited) (Note 2)

Cash and cash equivalents............................. $ 3,773 $ 45,457

Deposits, notes and loans receivable.................. 28,781 46,176

Investments (Note 3).................................. 261,518 117,384

Real estate rental property, less accumulated
depreciation of $6,379 and $5,902.................... 28,457 28,603

Property and equipment, less accumulated
depreciation of $2,724 and $2,596.................... 3,330 3,899

Other assets.......................................... 14,549 20,755
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TOTAL ASSETS.......................................... $340,408 $262,274
======== ========

The accompanying notes are an integral part of the consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS

LIABILITIES AND September 30, December 31,
SHAREHOLDERS' EQUITY AS AT 1998 1997
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(Dollars in thousands) (Unaudited) (Note 2)

LIABILITIES
Notes and loans payable (Note 3):
Related parties............................................ $ 65,492 $ 18,207
Others..................................................... 40,849 5,000
Debentures................................................... 33,038 41,846
Accounts and income taxes payable, accrued
expenses and minority interests............................. 40,448 34,711
-------- --------
Total liabilities.................................... 179,827 99,764
-------- --------

SHAREHOLDERS' EQUITY
4% Cumulative Convertible Preferred Stock,
$5 par value; authorized 189,287 shares;
issued and outstanding 174,226 and
179,672 shares.............................................. 871 898

6-1/2% Cumulative Convertible Preferred Stock,
$5 par value; authorized 988,055
shares; issued and outstanding 931,683 and 968,288
shares...................................................... 4,658 4,842

Class A Stock, $1 par value; authorized
60,000,000 shares; issued 24,555,670 and
24,418,325 shares; outstanding 23,950,270 and
23,812,925 shares........................................... 24,556 24,418

Additional paid-in capital................................... 57,566 57,491

Retained earnings............................................ 87,960 88,775

Treasury Stock, 605,400 shares of Class A Stock,
at cost..................................................... (3,829) (3,829)
Accumulated other comprehensive loss......................... (11,201) (10,085)
-------- --------
Total shareholders' equity........................... 160,581 162,510
-------- --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $340,408 $262,274
======== ========

The accompanying notes are an integral part of the consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
- -------------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)

Cash flows from operating activities:
Net (loss) income......................................... $ (815) $ 11,898
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Equity in earnings of affiliates......................... (7,619) (17,504)
Realized and unrealized losses (gains) on
investments............................................. 1,569 (5,750)
Depreciation expense..................................... 1,012 1,232
Amortization expense..................................... 1,055 1,379
Loss from impairment of investments...................... 270 977
Restructuring charge..................................... - 600
Minority interests....................................... (923) (360)
Translation (gain) loss.................................. (314) 133
Decrease in other assets.................................. 2,887 760
(Decrease) increase in accounts and income
taxes payable and accrued expenses....................... (4,398) 6,689
Investments made in trading securities.................... (30,579) (7,624)
Proceeds from sale of trading securities.................. 10,670 5,751
Dividends received from affiliates........................ 3,226 7,921
--------- --------

Net cash(used in) provided by operating
activities.............................................. (23,959) 6,102
--------- --------

Cash flows from investing activities:
Deposits, notes and loans receivable collected............ 15,779 13,975
Deposits, notes and loans receivable granted.............. (290) (993)
Investments made in affiliates and others................. (117,007) (7,449)
Proceeds from sale of investments:
Available for sale....................................... 353 1,537
Others................................................... 1,206 16,768
Proceeds from sale of real estate rental
property................................................. - 15,046
Purchase of property and equipment........................ (113) (843)
Purchase of real estate rental property................... (960) (1,018)
--------- --------

Net cash (used in) provided by
investing activities.................................... (101,032) 37,023
--------- --------

The accompanying notes are an integral part of the consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
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(Dollars in thousands) (Unaudited) (Unaudited)
(Note 2)

Cash flows from financing activities:
Notes and loans payable received:
Related parties.......................................... $ 83,148 $ 1,244
Others................................................... 68,763 590
Notes and loans payable repaid:
Related parties.......................................... (35,756) (18,701)
Others................................................... (32,910) (4,959)
Debentures repaid......................................... (8,246) (16,204)
Contribution to partnership by minority
interests................................................ 9,765 -
-------- --------

Net cash provided by (used in) financing
activities.............................................. 84,764 (38,030)
-------- --------

Effect of exchange rate changes on cash and
cash equivalents.......................................... (1,457) (1,455)
-------- --------

Net (decrease) increase in cash and cash
equivalents............................................... (41,684) 3,640
Cash and cash equivalents at beginning of
period.................................................... 45,457 20,633
-------- --------

Cash and cash equivalents at end of period................. $ 3,773 $ 24,273
======== ========

Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest:
Related parties.......................................... $ 1,454 $ 968
Others................................................... 2,647 2,933
-------- --------
Total interest paid.................................... $ 4,101 $ 3,901
======== ========

Income taxes paid......................................... $ 4,122 $ 568
======== ========

The accompanying notes are an integral part of the consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
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(Dollars in thousands, except share amounts) (Unaudited) (Unaudited)
(Note 2)

4% PREFERRED STOCK
Balance, beginning of year................................. $ 898 $ 955
Conversion of 5,446 and 6,565 shares into
Class A Stock............................................. (27) (33)
-------- -------
Balance, end of period..................................... $ 871 $ 922
======== =======

6-1/2% PREFERRED STOCK
Balance, beginning of year................................. $ 4,842 $ 5,012
Conversion of 36,605 and 30,150 shares into
Class A Stock............................................. (184) (151)
-------- -------
Balance, end of period..................................... $ 4,658 $ 4,861
======== =======

CLASS A STOCK
Balance, beginning of year................................. $ 24,418 $24,257
Issuance of shares upon conversion of
Preferred Stock........................................... 138 123
Issuance of additional shares.............................. - 3
-------- -------
Balance, end of period..................................... $ 24,556 $24,383
======== =======

ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year................................. $ 57,491 $57,410
Conversion of Preferred Stock.............................. 73 61
Issuance of additional shares.............................. 2 12
-------- -------
Balance, end of period..................................... $ 57,566 $57,483
======== =======

RETAINED EARNINGS
Balance, beginning of year................................. $ 88,775 $74,943
Net (loss) income.......................................... (815) 11,898
-------- -------
Balance, end of period..................................... $ 87,960 $86,841
======== =======

ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of year................................. $(10,085) $(6,628)

Cumulative translation adjustments:
Balance, beginning of year.............................. (10,085) (6,530)
Foreign currency translation adjustment................. (4,528) (3,171)
-------- -------
Balance, end of period.................................. (14,613) (9,701)
-------- -------

Unrealized gain on marketable securities:
Balance, beginning of year.............................. - (98)
Unrealized gain, net.................................... 3,412 98
-------- -------
Balance, end of period.................................. 3,412 -
-------- -------

Balance, end of period..................................... $(11,201) $(9,701)
======== =======

The accompanying notes are an integral part of the consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. As used in these financial statements, the term the "Company" refers
to Ampal-American Israel Corporation ("Ampal") and its consolidated
subsidiaries.

2. The December 31, 1997 consolidated balance sheet presented herein
was derived from the audited December 31, 1997 consolidated financial
statements of the Company.

Reference should be made to the Company's consolidated financial
statements for the year ended December 31, 1997 for a description of
the accounting policies which have been continued without change. Also,
reference should be made to the notes to the Company's December 31,
1997 consolidated financial statements for additional details of the
Company's consolidated financial condition, results of operations and
cash flows. The details in those notes have not changed except as a
result of normal transactions in the interim. Certain amounts in the
1997 consolidated financial statements have been reclassified to
conform with the current period's presentation. All adjustments (of a
normal recurring nature) which are, in the opinion of management,
necessary to a fair presentation of the results of the interim period
have been included.

3. On January 22, 1998 (the "Closing Date"), the Company completed its
purchase of a one-third interest in the assets of the shared networks
operation ("SNO") of Motorola Communications Israel, Ltd. ("Motorola
Israel") for a base purchase price of approximately $110 million. The
payment for the purchase price was obtained from the Company's own
resources as well as from two short-term bridge loans ("Short-Term
Loans"), one in the amount of $40 million from Bank Leumi USA (of which
$8 million plus interest was repaid on February 2, 1998) and a second
in the amount of $35 million from Bank Hapoalim B.M. ("Hapoalim"). Each
loan had a term of 90 days, bore interest at a rate of LIBOR plus 1/2%
and was repaid in full from the proceeds of the long-term loans
described below.

A new wireless communications service provider, MIRS Communication
Company Ltd. ("MIRS"), initially one-third owned by the Company and
two-thirds owned by Motorola Israel, coordinates and operates in Israel
the digital and analog public-shared two-way radio and other services
previously furnished by Motorola Israel. The digital wireless
communication service is based on Motorola Israel's iDEN(TM) integrated
wireless communication technology, which is known as MIRS in Israel.

In March 1998, the Company transferred its interest in MIRS to a
limited partnership (the "Partnership"). A wholly-owned Israeli
subsidiary of Ampal (the "General Partner") is the general partner of
the Partnership and owns 75.1% of the Partnership. The limited partners
of the Partnership purchased their interests in the Partnership from
the Partnership and include (i) an entity owned by Daniel Steinmetz and
Raz Steinmetz (directors of Ampal and the controlling persons of
Ampal's principal shareholder), which acquired a 9.1% interest in the
Partnership for $10 million, (ii) Hapoalim, which acquired a 7.45%
interest in the Partnership for $8.195 million, (iii) an unrelated
third party (The Israel Mezzanine Fund L.P., a limited partnership
whose general partner is First Israel Mezzanine Investors Ltd.), which
acquired a 7.45% interest in the Partnership for $8.195 million, and
(iv) an entity owned by Dr. Yehoshua Gleitman, Ampal's Chief Executive
Officer, which purchased a 0.9% interest for $1 million. In addition to
the purchase price, the limited partners also reimbursed the Company
for their pro rata share of the expenses incurred by the Company in
connection with the original purchase from Motorola Israel (including
interest from the Closing Date until the purchase date of the limited
partnership interests).

The related parties purchased their limited partnership interests on
the same terms as the unrelated third party which were determined
through arm's length negotiations between the Company and the unrelated
third party.

Each of the limited partners paid 35% of their respective purchase
price in cash and assumed their pro rata share of Ampal's financing of
the original purchase (equal to 65% of their respective purchase
prices) and assumed their pro rata share of the Partnership's long-term
financing. A portion of Dr. Gleitman's entity's purchase price was
obtained through two loans aggregating $250,000 from the Company. One
loan, in the amount of $150,000, has a term of 10 years, an interest
rate of LIBOR plus 0.8% and is without recourse to Dr. Gleitman. The
second loan, in the amount of $100,000, has a term of 10 years, an
interest rate of LIBOR plus 0.5% and is with recourse to Dr.
Gleitman. Both loans are secured by Dr. Gleitman's interest in the
Partnership.

The Partnership has been assigned all of the Company's rights under the
original purchase agreement with Motorola Israel and has assumed all
of its obligations.

On May 4, 1998, the Partnership received two long-term loans from
Hapoalim and Bank Leumi Le'Israel B.M. in the amount of $36.4 million,
each. Both loans are due on March 31, 2008 and bear interest at a rate
of LIBOR plus 0.8%. The principal payments are due as follows: 10% on
March 31, 2004, 15% on March 31, 2005 and 25% on each of the following
dates - March 31, 2006, 2007 and 2008. Interest will be paid annually
on March 31 of each year from March 31, 2001 until and including March
31, 2008. The proceeds from the long-term loans were used to repay the
Short-Term Loans.

The Partnership owns all of the authorized preferred shares of MIRS
and Motorola Israel owns all of the authorized ordinary shares. Each
share issued by MIRS is entitled to one vote.

The Company accounts for its investment in MIRS using the cost
method of accounting. Under the cost method, the Company recognizes
income from dividends as they are declared.

To the extent of available after-tax profits, MIRS is required to pay
dividends to the Partnership equal to at least $3,800,000 for fiscal
year 2000 and $7,100,000 for each fiscal year thereafter, so long as
the financial stability of MIRS will not be impaired. MIRS shall
endeavor to pay dividends in the following amounts: for fiscal year
1998, $4,950,000, for fiscal year 1999, $10,725,000 and for fiscal year
2000 and thereafter, $23,430,000 (inclusive of the required payments),
which all holders of an interest in MIRS shall share on a pro rata
basis. To the extent that any of the above dividends are not paid by
MIRS, they will accumulate. No dividends will be paid by MIRS to
Motorola Israel until the Partnership has received all of its
accumulated dividends. Any dividends which are paid in excess of the
above amounts for a given fiscal year will similarly be paid pro rata
to the Partnership and Motorola Israel based on their shares in MIRS.

Pursuant to the original purchase agreement, Motorola Israel guaranteed
that the Partnership would receive from MIRS at least $3,800,000 for
fiscal year 2000 and $7,100,000 for each fiscal year between 2001 and
2005 inclusive, subject to an obligation of the Partnership to repay
such guarantee payments in amount equal to the excess of the amount
actually received by the Partnership from MIRS with respect to any
subsequent year over $7,500,000.

Motorola Israel has agreed to make certain payments to the Partnership
in the event that, prior to the thirteenth anniversary of the Closing
Date, there is a dissolution, liquidation, bankruptcy, winding up, or
sale of all or substantially all of the assets of MIRS and the total
proceeds to the shareholders of MIRS is less than $450 million.

The $110 million base purchase price for the Partnership's one-third
interest in MIRS was based upon the Company's valuation of the SNO and
its prospects. The original purchase agreement provides that under
specified circumstances indicating that there has been an increase in
the enterprise value of MIRS, the Partnership must pay Motorola Israel
an additional amount (the "Bonus"). The formula for the Bonus varies
depending upon whether an initial public offering of MIRS' shares (an
"IPO") has been consummated. If an IPO is consummated prior to December
31, 2002, the Partnership must pay Motorola Israel the Bonus based on
an increase in the valuation of MIRS for purposes of the IPO. In no
event will such Bonus exceed $33 million multiplied by 1.16n, where n
represents the number of years (and any part thereof) between the
Closing Date and the closing of the IPO.

If an IPO is not consummated prior to December 31, 2002 and if all
dividends accumulated with respect to the Partnership's preferred
shares up to that time have been paid, then the Partnership must pay
Motorola Israel a Bonus if (A) the present value of the actual after
tax net income of MIRS (as reported by MIRS' auditors in compliance
with generally accepted accounting principles in Israel, excluding
capital gains derived from each transaction, not in the ordinary course
of business, in which the consideration for MIRS is more than $5
million) for fiscal years 1998 through 2002, discounted at the rate of
13%, exceeds (B) $71 million. In this case, the amount of the Bonus, if
any, will equal the lesser of (i) the amount of such excess multiplied
by 2.3376, or (ii) $46 million.

4. On June 9, 1998, Ampal's shareholders approved a grant of options to
purchase up to 1,000,000 shares of Class A Stock (200,000 shares at
$6.75 per share, 300,000 shares at $8 per share, 500,000 shares at $10
per share) and rights to purchase up to 200,000 shares of Class A Stock
at 80% of their fair market value to Dr. Yehoshua Gleitman, Chief
Executive Officer of Ampal. The shareholders also approved a long-term
incentive plan which provides for equity-based awards which are based
upon or related to up to 400,000 shares of Class A Stock. All
employees, officers, directors and consultants of the Company are
eligible for selection to receive awards under such plan.

5. As a result of a recent sale of Granite Hacarmel Investments Ltd.
("Granite") by its controlling shareholder, the shareholders' agreement
which had been in effect between that shareholder, the Company and the
Landau Group, as defined below, was terminated. The Company entered
into a new shareholders' agreement, dated July 16, 1998, with Yeshayahu
Landau and Yeshayahu Landau Properties (1998) Ltd. (collectively, the
"Landau Group"), with respect to their interests in Granite. The
Company owns a 21.5% interest in Granite and the Landau Group owns an
8.5% interest in Granite.

6. On July 27, 1998, a Tel Aviv District Court judge ruled against Ampal
in its dispute with Yakhin Hakal Ltd., the manager and co-owner of
Ampal's 50%-owned affiliates Etz Vanir Ltd. ("Etz Vanir") and Yakhin
Mataim Ltd. ("Yakhin Mataim"). The judge's decision allows Etz Vanir
and Yakhin Mataim to redeem debentures owned by Ampal for approximately
$800,000 and to require Ampal to surrender all of its shares of Etz
Vanir and Yakhin Mataim for their par value, which is nominal. After
the redemption and surrender, Ampal will no longer have any interest in
Etz Vanir or Yakhin Mataim.

Etz Vanir and Yakhin Mataim cultivate in the aggregate approximately
1,200 acres of citrus groves.

Etz Vanir and Yakhin Mataim have not reported their financial results
to Ampal since 1990 and, therefore, their financial results have not
been included in Ampal's financial statements. The carrying value of
Ampal's investment in Etz Vanir and Yakhin Mataim, as of September 30,
1998, is approximately $800,000.

of Appeal in Jerusalem. It is not expected that a final judgment will
be rendered before the end of 1999.

7. Effective March 31, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130 "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains, and losses) in a
full set of general-purpose financial statements. Total comprehensive
(loss) income for the nine months ended September 30, 1998 and
September 30, 1997 was $(1.9) million and $8.8 million, respectively,
and for the three months ended September 30, 1998 and September 30,
1997 was $(6.7) million and $5.9 million, respectively.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997:

Consolidated net income of Ampal-American Israel Corporation ("Ampal") and its
subsidiaries (collectively with Ampal, the "Company") decreased from $11.9
million for the nine-month period ended September 30, 1997, to a loss of $.8
million for the same period in 1998. The decrease in net income is primarily
attributable to the decrease in equity in earnings of affiliates, lower realized
gains on investments, unrealized losses on investments in 1998 as compared to
unrealized gains in 1997, and net interest expense in 1998 as compared to net
interest income in 1997. These decreases were partially offset by lower loss
from impairment of investments and other expenses in 1998.

Equity in earnings of affiliates decreased to $7.6 million for the nine months
ended September 30, 1998, from $17.5 million for the same period in 1997. The
decrease is primarily attributable to the decreased earnings of Ophir Holdings
Ltd. ("Ophir"), the Company's 42.5%-owned affiliate, which is a holding company
with interests in high technology and real estate companies. Ophir reported
lower earnings in the nine months ended September 30, 1998 as compared to the
same period in 1997, primarily due to lower realized and unrealized gains on
investments as a result of the sale of shares of Teledata Communications Ltd.
("Teledata") in 1997.

The decrease in the equity in earnings of affiliates was partially offset by the
increased earnings of Trinet Venture Capital Ltd. ("Trinet"), Coral World
International Limited ("CWI"), Carmel Container Systems Limited ("Carmel"), and
Bay Heart Limited ("Bay Heart"). Trinet, the Company's 50%-owned affiliate, a
high-technology venture capital fund, recorded realized and unrealized gains in
the nine months ended September 30, 1998 as compared to unrealized losses in the
same period in 1997. CWI, the Company's 50%-owned affiliate, which owns and
operates marine parks in Eilat (Israel), Perth and Manly (Australia), and Hawaii
(USA), reported increased earnings in 1998 as a result of earnings attributable
to its new marine park in Maui, Hawaii which opened in March 1998. Carmel, the
Company's 20.7%-owned affiliate, which is a manufacturer of paper-board
packaging and related products, also recorded higher earnings in 1998 due to the
improved efficiency at Carmel's new manufacturing plant in Caesarea and
increased sales of containers to the local market, despite the economic slowdown
in Israel. Bay Heart, the Company's 37%-owned affiliate, which leases and
operates a shopping mall near Haifa, recorded higher earnings as a result of
decreased interest expense on its Consumer Price Index-linked bank borrowings.

The Company recorded $2.2 million of unrealized losses on investments in trading
securities, which are primarily attributable to the Company's investment during
the third quarter of 1998 in the shares of Bank Leumi Le'Israel B.M. ("Leumi")
in the amount of approximately $21 million. As a result of a further market
decline in the price of Leumi stock, the Company estimated that its unrealized
loss on Leumi's shares increased by approximately $1.6 million for the period of
October 1, 1998 through November 10, 1998. The Company recorded $1.6 million of
unrealized gains on investments in trading securities in the nine-month period
ended September 30, 1997. At September 30, 1998 and December 31, 1997, the
aggregate fair value of trading securities amounted to approximately $25.7
million and $7.5 million, respectively.

In the nine months ended September 30, 1998, the Company recorded $.6 million of
gains on sale of investments, which are primarily attributable to its
investments in Mercury Interactive Corporation ("Mercury"), Shikun U'Fituach
Le'Israel Ltd., Fundtech Ltd. and M-Systems Flash Disk Pioneers Ltd. In the same
period in 1997, the

Company recorded $4.2 million of gains on sale of investments, $2.9 million
of which is attributable to its direct investment in Teledata.

The Company recorded net interest expense in the amount of $4.4 million in the
nine months ended September 30, 1998, as compared to net interest income of $.5
million in the same period in 1997. The net interest expense is primarily
attributable to bank borrowings in connection with the Company's investment in
MIRS Communication Company Ltd. ("MIRS").

Manufacturing revenues and expenses, which reflect the operations of Paradise
Industries Ltd., the Company's 85.1%-owned subsidiary, which is a manufacturer
and distributor of mattresses and fold-out beds in Israel, decreased as a result
of the slowdown in the Israeli economy in 1998.

The Company recorded a $.3 million loss from impairment of its investment in
Geotek Communications Ltd. in the nine months ended September 30, 1998. In
the same period of 1997 the Company recorded a $1 million loss on impairment
of its investment in U.D.S. - Ultimate Distribution Systems Ltd.

Other expenses decreased for the nine months ended September 30, 1998 as
compared to the same period in 1997, primarily as a result of a decrease in
administrative expenses and the effect of translation.

The change in the effective income tax rate in 1998 as compared to 1997 is
mainly attributable to the increased deferred tax provisions of certain Israeli
subsidiaries due to the reduction of available tax benefits.

THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997:

Consolidated net income decreased from $4.6 million for the three-month
period ended September 30, 1997, to a loss of $1.9 million for the same
period in 1998. The decrease in net income is primarily attributable to the
decrease in equity in earnings of affiliates, realized and unrealized losses
on investments, and the increase in net interest expense in 1998. These
decreases were partially offset by the decrease in other expenses in 1998.

Equity in earnings of affiliates decreased from $8.3 million for the three
months ended September 30, 1997, to $2.3 million for the same period in 1998.
The decrease is primarily attributable to decreased earnings of Ophir in the
third quarter of 1998 as compared to the same period in 1997. This decrease was
partially offset by increases in the Company's equity in earnings of Moriah
Hotels Ltd. ("Moriah") and CWI. Moriah, the Company's 46%-owned affiliate, which
owns and operates hotels in Israel, reported higher earnings mainly as a result
of translation gains recorded in the third quarter. CWI reported increased
earnings for the reasons described in "Results of Operations - Nine months ended
September 30, 1998 compared to nine months ended September 30, 1997."

In the quarter ended September 30, 1998, the Company recorded $.6 million of
losses on the sale of various investments, as compared to a $.1 million gain in
the same period in 1997.

The Company also recorded $2.3 million of unrealized losses on investments in
the three-month period ended September 30, 1998, which are primarily
attributable to its investment in shares of Leumi, as compared to $.6 million,
($.4 million attributable to the investment in Mercury) of unrealized gains on
investments in the same period in 1997.

The Company recorded net interest expense in the amount of $1.7 million in the
three months ended September 30, 1998, as compared to $13,000 in the same period
in 1997. (See "Results of Operations - Nine months ended September 30, 1998
compared to nine months ended September 30, 1997.")

The increase in the rental property operating expenses for the three months
ended September 30, 1998 as compared to the same period in 1997 is attributable
to a real estate tax refund received in the third quarter of 1997 by the
Company's United States real estate subsidiary.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1998, cash and cash equivalents were $3.8 million as
compared with $45.5 million at December 31, 1997. The decrease in cash and
cash equivalents and increase in investments are primarily attributable to
the investment in MIRS (See "Investment in MIRS") and Leumi (See "Results of
Operations - Nine months ended September 30, 1998 compared to nine months
ended September 30, 1997.") The increases in notes and loans payable and
minority interests are also attributable to the investment in MIRS. The
decreases in deposits, notes and loans receivable and debentures are
primarily attributable to scheduled repayments.

In addition to the investment in MIRS, the Company made the following
investments in the high-technology field in the nine months ended September
30, 1998, notably; (1) a $2.5 million investment to acquire a 9% interest in
Smartlight Ltd., a developer and marketer of innovative digital film viewers
for use in the diagnosis of medical images; (2) a $1 million investment to
acquire 3.8% of PowerDsine Ltd. (total equity interest - 11.9%), a developer,
manufacturer and marketer of innovative modules and components for the
telecommunications industry; (3) a $.8 million investment to acquire an
additional 7.3% of XaCCT Technologies Ltd. (total equity interest - 19.1%), a
developer of billing, auditing and accounting software for TCP/IP networks;
(4) a $.7 million investment to acquire an additional 1.6% in its existing
investee, Mutek Solutions Ltd. (total equity interest - 8.8%), a developer of
software for servers; (5) a $.6 million investment to acquire 15.4% of Medco
Electronics Systems Ltd., a developer of special devices used to detect
cardiac problems in fetuses; (6) a $.3 million investment in its existing
investee, Qronus Interactive Israel (1994) Ltd., a developer and marketer of
software testing tools and (7) a $.2 million investment in its existing
investee, Shellcase Ltd., a developer and marketer of packaging devices for
computer chips.

INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATION RISKS

The Company and its investee companies enter into shekel-based loans either as
borrowers or as lenders, which are typically linked to the Consumer Price Index
in Israel ("CPI"). Therefore, changes in the CPI and/or in the rate of exchange
between the Israeli shekel and the U.S. dollar can have a direct effect on the
Company's financial condition and earnings. During the month of October 1998,
the Israeli shekel experienced a devaluation against the U.S. dollar of
approximately 11%, which the Company believes will not have a material effect on
its results of operations.

INVESTMENT IN MIRS

On January 22, 1998 (the "Closing Date"), the Company completed its purchase of
a one-third interest in the assets of the shared networks operation ("SNO") of
Motorola Communications Israel, Ltd. ("Motorola Israel") for a base purchase
price of approximately $110 million. The payment for the purchase price was
obtained from the Company's own resources as well as from two short-term bridge
loans ("Short-Term Loans"), one in the amount of $40 million from Bank Leumi USA
(of which $8 million plus interest was repaid on February 2, 1998) and a second
in the amount of $35 million from Bank Hapoalim B.M. ("Hapoalim"). Each loan had
a term of 90 days, bore interest at a rate of LIBOR plus 1/2% and was repaid in
full from the proceeds of the long-term loans described below.

A new wireless communications service provider, MIRS, initially one-third owned
by the Company and two-thirds owned by Motorola Israel, coordinates and operates
in Israel the digital and analog public-shared two-way radio and other services

previously furnished by Motorola Israel. The digital wireless communication
service is based on Motorola Israel's iDEN(TM) integrated wireless
communication technology, which is known as MIRS in Israel.

In March 1998, the Company transferred its interest in MIRS to a limited
partnership (the "Partnership"). A wholly-owned Israeli subsidiary of Ampal (the
"General Partner") is the general partner of the Partnership and owns 75.1% of
the Partnership. The limited partners of the Partnership purchased their
interests in the Partnership from the Partnership and include (i) an entity
owned by Daniel Steinmetz and Raz Steinmetz (directors of Ampal and the
controlling persons of Ampal's principal shareholder), which acquired a 9.1%
interest in the Partnership for $10 million, (ii) Hapoalim, which acquired a
7.45% interest in the Partnership for $8.195 million, (iii) an unrelated third
party (The Israel Mezzanine Fund L.P., a limited partnership whose general
partner is First Israel Mezzanine Investors Ltd.), which acquired a 7.45%
interest in the Partnership for $8.195 million, and (iv) an entity owned by Dr.
Yehoshua Gleitman, Ampal's Chief Executive Officer, which purchased a 0.9%
interest for $1 million. In addition to the purchase price, the limited partners
also reimbursed the Company for their pro rata share of the expenses incurred by
the Company in connection with the original purchase from Motorola Israel
(including interest from the Closing Date until the purchase date of the limited
partnership interests).

The related parties purchased their limited partnership interests on the same
terms as the unrelated third party which were determined through arm's length
negotiations between the Company and the unrelated third party.

Each of the limited partners paid 35% of their respective purchase price in cash
and assumed their pro rata share of Ampal's financing of the original purchase
(equal to 65% of their respective purchase prices) and assumed their pro rata
share of the Partnership's long-term financing. A portion of Dr. Gleitman's
entity's purchase price was obtained through two loans aggregating $250,000 from
the Company. One loan, in the amount of $150,000, has a term of 10 years, an
interest rate of LIBOR plus 0.8% and is without recourse to Dr. Gleitman. The
second loan, in the amount of $100,000, has a term of 10 years, an interest rate
of LIBOR plus 0.5% and is with recourse to Dr. Gleitman. Both loans are secured
by Dr. Gleitman's interest in the Partnership.

The Partnership has been assigned all of the Company's rights under the original
purchase agreement with Motorola Israel and has assumed all of its obligations.

On May 4, 1998, the Partnership received two long-term loans from Hapoalim and
Bank Leumi Le'Israel B.M. in the amount of $36.4 million, each. Both loans are
due on March 31, 2008 and bear interest at a rate of LIBOR plus 0.8%. The
principal payments are due as follows: 10% on March 31, 2004, 15% on March 31,
2005 and 25% on each of the following dates March 31, 2006, 2007 and 2008.
Interest will be paid annually on March 31 of each year from March 31, 2001
until and including March 31, 2008. The proceeds from the long-term loans were
used to repay the Short-Term Loans.

The Partnership owns all of the authorized preferred shares of MIRS and
Motorola Israel owns all of the authorized ordinary shares. Each share
issued by MIRS is entitled to one vote.

The Company accounts for its investment in MIRS using the cost method of
accounting. Under the cost method, the Company recognizes income from dividends
as they are declared.

paid by MIRS to Motorola Israel until the Partnership has received all of its
accumulated dividends. Any dividends which are paid in excess of the above
amounts for a given fiscal year will similarly be paid pro rata to the
Partnership and Motorola Israel based on their shares in MIRS.

Pursuant to the original purchase agreement, Motorola Israel guaranteed that the
Partnership would receive from MIRS at least $3,800,000 for fiscal year 2000 and
$7,100,000 for each fiscal year between 2001 and 2005 inclusive, subject to an
obligation of the Partnership to repay such guarantee payments in amount equal
to the excess of the amount actually received by the Partnership from MIRS with
respect to any subsequent year over $7,500,000.

Motorola Israel has agreed to make certain payments to the Partnership in the
event that, prior to the thirteenth anniversary of the Closing Date, there is a
dissolution, liquidation, bankruptcy, winding up, or sale of all or
substantially all of the assets of MIRS and the total proceeds to the
shareholders of MIRS is less than $450 million.

The $110 million base purchase price for the Partnership's one-third interest in
MIRS was based upon the Company's valuation of the SNO and its prospects. The
original purchase agreement provides that under specified circumstances
indicating that there has been an increase in the enterprise value of MIRS, the
Partnership must pay Motorola Israel an additional amount (the "Bonus"). The
formula for the Bonus varies depending upon whether an initial public offering
of MIRS' shares (an "IPO") has been consummated. If an IPO is consummated prior
to December 31, 2002, the Partnership must pay Motorola Israel the Bonus based
on an increase in the valuation of MIRS for purposes of the IPO. In no event
will such Bonus exceed $33 million multiplied by 1.16n, where n represents the
number of years (and any part thereof) between the Closing Date and the closing
of the IPO.

If an IPO is not consummated prior to December 31, 2002 and if all dividends
accumulated with respect to the Partnership's preferred shares up to that time
have been paid, then the Partnership must pay Motorola Israel a Bonus if (A) the
present value of the actual after tax net income of MIRS (as reported by MIRS'
auditors in compliance with generally accepted accounting principles in Israel,
excluding capital gains derived from each transaction, not in the ordinary
course of business, in which the consideration for MIRS is more than $5 million)
for fiscal years 1998 through 2002, discounted at the rate of 13%, exceeds (B)
$71 million. In this case, the amount of the Bonus, if any, will equal the
lesser of (i) the amount of such excess multiplied by 2.3376, or (ii) $46
million.

YEAR 2000 COMPLIANCE

The Company is currently in the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue which is the result of computer programs having been written using two
digits instead of four to define a year. This issue affects computer systems
that have date sensitive programs that may recognize a date using "00" as 1900
rather than 2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail, resulting in business
interruption. The Company does not believe the cost of converting all internal
systems to be year 2000 compliant will be material to its financial condition or
results of operations. Costs, which are not expected to be material, related to
the year 2000 issue are being expensed as incurred.

The year 2000 issue is expected to affect the systems of various entities with
which the Company interacts. However, there can be no assurance that the systems
of other companies on which the Company's systems rely will be timely converted,
or that a failure by another company's systems to be year 2000 compliant would
not have a material adverse effect on the Company.

OTHER DEVELOPMENTS

On June 9, 1998, Ampal's shareholders approved a grant of options to purchase up
to 1,000,000 shares of Class A Stock (200,000 shares at $6.75 per share, 300,000
shares at $8 per share, 500,000 shares at $10 per share) and rights to purchase
up to 200,000 shares of Class A Stock at 80% of their fair market value to Dr.
Yehoshua Gleitman, Chief Executive Officer of Ampal. The shareholders also
approved a long-term incentive plan which provides for equity-based awards which
are based upon or related to up to 400,000 shares of Class A Stock. All
employees, officers, directors and consultants of the Company are eligible for
selection to receive awards under such plan.

As a result of a recent sale of Granite Hacarmel Investments Ltd. ("Granite")
by its controlling shareholder, the shareholders' agreement which had been in
effect between that shareholder, the Company and the Landau Group (as defined
below) was terminated. The Company entered into a new shareholders'
agreement, dated July 16, 1998, with Yeshayahu Landau and Yeshayahu Landau
Properties (1998) Ltd. (collectively, the "Landau Group"), with respect to
their interests in Granite. The Company owns a 21.5% interest in Granite and
the Landau Group owns an 8.5% interest in Granite.

On July 27, 1998, a Tel Aviv District Court judge ruled against Ampal in its
dispute with Yakhin Hakal Ltd., the manager and co-owner of Ampal's 50%-owned
affiliates Etz Vanir Ltd. ("Etz Vanir") and Yakhin Mataim Ltd. ("Yakhin
Mataim"). The judge's decision allows Etz Vanir and Yakhin Mataim to redeem
debentures owned by Ampal for approximately $800,000 and to require Ampal to
surrender all of its shares of Etz Vanir and Yakhin Mataim for their par value,
which is nominal. After the redemption and surrender, Ampal will no longer have
any interest in Etz Vanir or Yakhin Mataim.

Etz Vanir and Yakhin Mataim cultivate in the aggregate approximately 1,200 acres
of citrus groves.

Etz Vanir and Yakhin Mataim have not reported their financial results to Ampal
since 1990 and, therefore, their financial results have not been included in
Ampal's financial statements. The carrying value of Ampal's investment in Etz
Vanir and Yakhin Mataim, as of September 30, 1998, is approximately $800,000.

At the request of Ampal's attorneys, the Tel Aviv District Court has issued a
stay of performance of the judgment until the High Court of Appeal issues a
final judgment. On October 15, 1998, Ampal filed an appeal with the High Court
of Appeal in Jerusalem. It is not expected that a final judgment will be
rendered before the end of 1999.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS - On July 27, 1998, a Tel Aviv District Court
judge ruled against Ampal in its dispute with Yakhin Hakal, the
manager and co-owner of Ampal's 50%-owned affiliates Etz Vanir and
Yakhin Mataim. The judge's decision allows Etz Vanir and Yakhin
Mataim to redeem debentures owned by Ampal for approximately
$800,000 and to require Ampal to surrender all of its shares of
Etz Vanir and Yakhin Mataim for their par value, which is nominal.
After the redemption and surrender, Ampal will no longer have any
interest in Etz Vanir or Yakhin Mataim.

At the request of Ampal's attorneys, the Tel Aviv District Court
has issued a stay of performance of the judgment until the High
Court of Appeals issues a final judgment. On October 15, 1998,
Ampal filed an appeal with the High Court of Appeal in Jerusalem.
It is not expected that a final judgment will be rendered before
the end of 1999.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - None.

Item 3. DEFAULTS UPON SENIOR SECURITIES - None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.

Item 5. OTHER INFORMATION - None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit 3 - By-laws of Ampal-American Israel Corporation, amended
as of June 9, 1998.

Exhibit 11 - Schedule Setting Forth Computation of Earnings Per
Share of Class A Stock.

Exhibit 27 - Financial Data Schedule.

(b) Reports on Form 8-K. - None.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------

SIGNATURES
----------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

AMPAL-AMERICAN ISRAEL CORPORATION

By: /s/ Yehoshua Gleitman
---------------------------------
Yehoshua Gleitman
Chief Executive Officer
(Principal Executive Officer)

By: /s/ Shlomo Meichor
---------------------------------
Shlomo Meichor
Vice President - Finance
and Treasurer
(Principal Financial Officer)

By: /s/ Alla Kanter
---------------------------------
Alla Kanter
Vice President - Accounting
and Controller
(Principal Accounting Officer)

Dated: November 13, 1998

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
--------------------------------------------------

EXHIBIT INDEX

Exhibit No. Description

3 By-laws of Ampal-American Israel Corporation,
amended as of June 9, 1998 ........................ Page 21

11 Schedule Setting Forth Computation of Earnings
Per Share of Class A Stock......................... Page 45

27 Financial Data Schedule.