THE ISRAELI CABINET did the right thing in dropping the Lavi. The plane had already consumed about $1.5 billion in U.S. foreign aid, the costs were only going to rise, and neither the United States nor Israel could afford them. The dream was for Israel to build its own fighter, first for defense, then perhaps for export. But for Israel the project meant stripping other vital areas of the defense budget, while for the United States it meant stripping other vital areas of foreign aid.

The price was too high, the more so because Israel's security was not at issue. Israel needs new fighters, but the United States is offering F-16s, which are roughly as good as the Lavi would have been, and cheaper. The Lavi decision came down instead to economics and politics -- on the one hand jobs and foreign exchange, on the other independence and national pride.

The Likud Party of Prime Minister Yitzhak Shamir thus continued in its unhelpful way to hold out for the project. Ariel Sharon called the decision to drop it "a surrender to foreigners," meaning mainly the Reagan administration, which had wisely pressed the Israelis to give up the fighter. It was left to the Labor half of the divided government, led by Foreign Minister Shimon Peres, to bail it out. The Lavi would have put an enormous strain on Israel's finances as well as its relationship with this country. Israeli public opinion was nonetheless stoutly in favor of the proj-The "no" vote was therefore not easy for Mr. Peres to cast. A U.S. goal should be to make sure he doesn't regret it.