AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES

CRITICAL ACCOUNTING POLICIES

The preparation of Ampal - American Israel Corporation's ("Ampal", and collectively with its subsidiaries, the "Company") consolidated financial statements is in conformity with accounting principles generally accepted in the United States ("GAAP") which requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. To facilitate the understanding of Ampal's business activities, described below are certain Ampal accounting policies that are relatively more important to the portrayal of its financial condition and results of operations and that require management's subjective judgments. Ampal bases its judgments on its experience and various other assumptions that it believes to be reasonable under the circumstances. Please refer to Note 1 to Ampal's consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for a summary of all of Ampal's significant accounting policies.

No significant updates have occurred since our last annual report on form 10-K.

Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin ASC
605 (formerly SAB No. 104 - "Revenue Recognition"). Revenue is recognized when
(a) the significant risks and rewards of ownership of the goods have been transferred to the buyer; (b) the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably;
(d) it is probable that the economic benefits associated with the transaction will flow to the Company; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Chemical income derives from the following activities: sales of a wide range of liquid chemicals, providing maritime shipping services of chemicals by ships and providing other services which include logistics and storage services for chemicals.

Revenue from services is recognized as follows:

- Revenues arising from the provision of marine transport services proportionally over the period of the marine transport services. As to voyages uncompleted in which a loss is expected, a full provision is made in the amount of the expected loss.

- Revenues from chemical brokerage commissions are recognized when the right to receive them is created.

- Rental income is recorded over the rental period. Revenues from services provided to country-club subscribers are recognized ratably over the contractual period.

- Income from other services is recognized over the period during which those services are performed.

Recently adopted and recently Issued Accounting Pronouncements

ASC 105 (formerly SFAS No. 168)

In June 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 105, "Generally Accepted Accounting Principles" (formerly Statement of Financial Accounting Standards ("SFAS") No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 168" ("SFAS 168")). The statement confirmed that the FASB Accounting Standards Codification (the "Codification") will become the single official source of authoritative U.S. GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force ("EITF"), and related literature. Upon the effectiveness of the codification, only one level of authoritative U.S. GAAP will exist. All other literature will be considered non-authoritative. The Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification, which changes the referencing of financial standards, became effective for interim and annual periods ending on or after September 15, 2009, and the adoption did not have impact on our financial statements.

ASC 810 (formerly SFAS No. 167)

In June 2009, the FASB issued accounting guidance contained within ASC 810, "Consolidation", regarding the consolidation of variable interest entities (formerly SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)"). Amendments to FASB Interpretation No. 46(R), ASC 810 is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company's involvement in variable interest entities. This standard is effective for interim and annual periods ending after November 15, 2009. We are currently assessing the potential impacts, if any, on our consolidated financial statements.

In April 2009, the FASB issued ASC 820 (formerly FSP No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly"), which provides additional guidance in accordance with ASC 820, Fair Value Measurements, when the volume and level of activity for the asset or liability has significantly decreased. ASC 820 is effective for interim and annual reporting periods ending after June 15, 2009, and the adoption did not have a material impact on our financial statements.

ASC 825 (formerly FSP No. 107-1)

In April 2009, the FASB issued ASC 825, "Financial Instruments" (formerly FASB Staff Position 107-1, "Interim Disclosures about Fair Value of Financial Instruments"). ASC 825 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This standard also requires those disclosures in summarized financial information at interim reporting periods ending after June 15, 2009, and the adoption did not have a material impact on our financial statements.

ASC 820 (formerly SFAS No. 157)

In September 2006, the FASB issued ASC 820 (formerly SFAS No. 157, "Fair Value Measurements", as it applies to non-financial assets and liabilities that are not required to be measured at fair value on a recurring (at least annual) basis), which provides guidance on how to measure assets and liabilities that use fair value. ASC 820 will apply whenever another US GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require additional disclosures in both annual and quarterly reports. ASC 820 is for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Company). In February 2008, the FASB deferred for one additional year the effective date of ASC 820 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of the parts of ASC 820 that became effective in 2008 did not have a material impact on the Company's financial statements. The adoption of the remaining parts of ASC 820 did not have a material impact on our financial statements.

ASC 805 (formerly SFAS No. 141R)

In December 2007, the FASB issued ASC 805-10-65-1(formerly SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R") which replaces SFAS No. 141, "Business Combination"). ASC 805-10-65-1 establishes the principles and requirements for how an acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) discloses the business combination. This Statement applies to all transactions in which an entity obtains control of one or more businesses, including transactions that occur without the transfer of any type of consideration. ASC 805-10-65-1 will be effective on a prospective basis for all business combinations on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. Early adoption is not allowed. The adoption of ASC 805-10-65-1 did not have a material impact on our financial statements.

ASC 810 (formerly SFAS No. 160)

In December 2007, the FASB issued accounting guidance contained within ASC 810, "Consolidation", regarding noncontrolling interests (formerly SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements") ("ASC 810"). ASC 810-10-65 amends ARB No. 51 and establishes accounting and reporting standards that require noncontrolling interests (previously referred to as minority interest) to be reported as a component of equity, changes in a parent's ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and upon a loss of control, retained ownership interest will be remeasured at fair value, with any gain or loss recognized in earnings. The presentation and disclosure requirements of ASC 810-10-65 were applied retrospectively. Other than the change in presentation of noncontrolling interests, the adoption of ASC 810-10-65 did not have a material impact on our financial statements.

ASC 815 (formerly SFAS No. 161)

In March 2008, FASB issued the disclosure requirements within ASC 815, "Derivatives and Hedging" (formerly SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB No. 133"). ASC 815 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity's derivative instruments and hedging activities and their effects on the entity's financial position, financial performance, and cash flows. The disclosure requirements apply to all derivative instruments within the scope of ASC 815. The standard also applies to non-derivative hedging instruments and all hedged items designated and qualifying under ASC 815. Other than the required disclosures (see note 10), the adoption of ASC 815 did not have a material impact on our financial statements.

In April 2008, the FASB issued ASC 350-30, "Goodwill and Other Intangible Assets." (formerly FASB Staff Position (FSP) No. 142-3, "Determination of the Useful Life of Intangible Assets"), which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset. ASC 350-30 requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset under ASC 350-30 and the period of expected cash flows used to measure the fair value of the asset under ASC 805-10-65-1, "Business Combinations." The adoption of ASC 350-30 did not have a material impact on our financial statements.

Results of Operations

Changes in pricing and demand for chemicals

The overall demand for chemical products, especially commodity chemicals, is highly dependent on general economic conditions. In the past quarter, the price of crude oil slightly increased, which led to a moderate price increase in commodity chemicals. The demand for chemicals is also showing a moderate increase. The G-7's economic growth indicators reveal an ease in the recession. It is too early to state that it is the end of the slow down, as private consumption is still slow.

Nine months ended September 30, 2009 compared to nine months ended September 30, 2008

The Company recorded a consolidated net loss of $19.0 million for the nine months ended September 30, 2009, compared to a net loss of $40.3 million for the corresponding period in 2008. The loss in 2009 is primarily attributable to the interest expenses resulting from the issuance of debentures and loans for the financing of Gadot's purchase which was partially offset by translation gain, while the loss in 2008 was primarily attributable to interest expenses and translation loss.

In the nine months ended September 30, 2009 and 2008, the Company included the following certain data of Gadot (in millions of dollars):

                                                                September 30, 2009    September 30, 2008
                                                               --------------------- ---------------------


     Chemical income                                             $         287.4       $         419.6
                                                               -----------------     -----------------

     Chemical expense                                            $         265.7       $         383.3
                                                               -----------------     -----------------

     Other expense (mainly general and administrative)           $          12.8       $          16.8
                                                               -----------------     -----------------

     Interest expense                                            $           5.3       $           7.6
                                                               -----------------     -----------------

In the nine months ended September 30, 2009, the Company recorded $4.8 million of marketing expense, as compared to a $8.2 million marketing expense in the corresponding period in 2008. These expenses are attributable to Gadot and composed mainly of salary and commission expenses. The decrease is primarily the result of a restructuring plan that took place at Gadot.

In the nine months ended September 30, 2009, the Company recorded a $24.6 million of general, administrative and other expense, as compared to $27.3 million in the corresponding period in 2008. The decrease is primarily the result of a restructuring plan that took place at Gadot.

In the nine months ended September 30, 2009, the Company recorded a $0.8 million of noncontrolling interests share in losses of subsidiaries, net, as compared to $9.6 million share in losses in the corresponding period in 2008. These losses are mainly attributable to translation losses in the notes issued to the partners in Merhav Ampal Energy, LP, an Israeli limited partnership (the "Joint Venture"), resulting from the valuation of the New Israeli Shekel compared to the U.S. Dollar.

In the nine months ended September 30, 2009, the Company recorded a $25.7 million interest expense, as compared to a $33.3 million interest expense for the corresponding period in 2008. The interest expense relates to the notes payable which the Company received to finance the purchase of Gadot, issuance of the Company's debentures, the Company's notes payable and the interest expense of the SWAP agreements. The decrease is mainly attributable to the change in the LIBOR interest rate.

The Company recorded a net loss of $1.2 million in Equity in losses of affiliates for the nine months ended September 30, 2009, compared to a net gain in Equity in earnings of affiliates of $1.2 million for the corresponding period in 2008.

Results of operations analyzed by segments for nine months ended September 30:

                       2009              2008
                 ----------------- ----------------
                    (U.S. Dollars in thousands)
                 ----------------------------------


Revenues:

Chemicals         $     287,434     $     419,620
Finance                   6,562             5,850
Leisure-time              2,086             2,309
                 --------------    --------------
                  $     296,082     $     427,779
                 --------------    --------------

The Chemicals income relates solely to Gadot and was derived from the following activities: sales of a wide range of liquid chemicals, providing maritime shipping services of chemicals by ships and providing other services which include logistics and storage services for chemicals.

In the nine months ended September 30, 2009, the Company recorded $296.1 million in revenue which was comprised of $287.4 million in the Chemicals segment, $6.6 million in the Finance segment and $2.1 million in the Leisure-time segment, as compared to $427.8 million for the same period in 2008, which was comprised of $419.6 million in the Chemicals segment, $5.9 million in the Finance segment and $2.3 million in the Leisure-time segment. The decrease in Chemicals revenues is primarily attributable to the slowdown in the markets, especially in Europe, which lead the decrease in sold quantities and product prices, and also due to the significant decrease in the demand for chemical carrier shipping. The recession and the resulting significant decrease in the demand for chemical carrier ships were felt during the nine months of 2009. The decrease in demand for chemical shipping lead to a steep decline in freight rates. In addition, the decline in shipped quantities generates an uneven shipment of chemicals, which in certain voyages, results in almost no cargo being shipped on the return leg of a voyage.

                                         2009              2008
                                   ----------------- ----------------
                                      (U.S. Dollars in thousands)
                                   ----------------------------------


Expenses:

Chemicals                           $     283,321     $     420,369
Finance                                    32,406            54,448
Leisure-time                                1,999             2,368
                                   --------------    --------------
                                          317,726           477,185
Equity in losses of affiliates              1,203             1,209
                                   --------------    --------------
Total                               $     318,929     $     478,394
                                   --------------    --------------

In the nine months ended September 30, 2009, the Company recorded $318.9 million in expenses which was comprised of $283.3 million of expenses in the Chemicals segment, $32.4 million of expenses in the Finance segment, $2.0 million of expenses in the Leisure-time segment and a $1.2 million loss in Equity in earnings of affiliates, as compared to $478.4 million in expenses for the same period in 2008 which was comprised of $420.4 million in the Chemicals segment, $54.4 million in the Finance segment, $2.4 million in the Leisure-time segment and a $1.2 million loss in Equity in earnings of affiliates. The decrease in expenses in the Finance segment is primarily attributable to the $3.7 million translation gain, which was recorded due to the devaluation of the Company's debt denominated in New Israeli Shekel as compared to the U.S Dollar, as compared to $19.5 million translation loss in 2008, and was partially offset by the increase in interest expense related to the notes payable which the Company received to finance the purchase of Gadot and issuance of the Company's debentures. The chemical commodity pricing is a derivative of the crude oil pricing. During 2008 the price of crude oil increased significantly and caused an increase in the chemical commodity prices as well. Since September 2008, the crude oil's price decreased and led to a decrease in chemical commodity prices in 2009.

The Company recorded a consolidated net loss of $18.1 million for the three months ended September 30, 2009 compared to a net loss of $12.6 million for the corresponding period in 2008. The loss in 2009 and 2008 is primarily attributable to the translation loss and interest expenses resulting from the issuance of the debentures and loans for the financing of Gadot's purchase.

In the three months ended September 30, 2008 and 2009, the Company included the following certain data of Gadot (in millions of dollars):

                                                                September 30, 2009    September 30, 2008
                                                               --------------------- ---------------------


     Chemical income                                             $         101.1       $         142.4
                                                               -----------------     -----------------

     Chemical expense                                            $          93.9       $         126.9
                                                               -----------------     -----------------

     Other expense (mainly general and administrative)           $           4.2       $           5.8
                                                               -----------------     -----------------

     Interest expense                                            $           1.8       $           3.7
                                                               -----------------     -----------------

In the three months ended September 30, 2009, the Company recorded $1.5 million of marketing expense, as compared to a $2.1 million marketing expense in the corresponding period in 2008. These expenses are attributable to Gadot and composed mainly of salary and commission expenses. The decrease is primarily the result of a restructuring plan that took place in Gadot.

In the three months ended September 30, 2009, the Company recorded $8.5 million of general, administrative and other expenses, as compared to $9.0 million in the corresponding period in 2008.

In the three months ended September 30, 2009, the Company recorded $4.0 million of noncontrolling interests share in loss of subsidiaries, net, as compared to $3.3 million share in loss in the corresponding period in 2008. These losses are mainly attributable to translation gains in the notes issued to the partners in the Joint Venture, resulting from the valuation of the New Israeli Shekel compared to the U.S. Dollar.

In the three months ended September 30, 2009, the Company recorded a $12.3 million interest expense, as compared to a $18.3 million interest expense for the corresponding period in 2008. This decrease is a result of a lower increase in the Israeli Consumer Price Index (which the Company's debentures are linked to) in the three months and September 30, 2009 as compared to the increase in the Israeli Consumer Price Index in the three months ended September 30, 2008.

In the three months ended September 30, 2009, the Company recorded a $8.2 million translation loss, as compared to a $5.9 million translation gain for the corresponding period in 2008. The translation loss is related to a change in the valuation of the New Israeli Shekel as compared to the U.S. Dollar.

The Company recorded a $0.9 million net loss in Equity in losses of affiliates for the three months ended September 30, 2009, compared to a net loss of $1.8 million for the corresponding period in 2008.

                       2009              2008
                 ----------------- ----------------
                    (U.S. Dollars in thousands)
                 ----------------------------------


Revenues:

Chemicals         $     101,141     $     142,597
Finance                   1,026             2,310
Leisure-time                778               817
                 --------------    --------------
Total             $     102,945     $     145,724
                 --------------    --------------

The Chemicals income relates solely to Gadot and derives from the following activities: sales of a wide range of liquid chemicals, providing maritime shipping services of chemicals by ships and providing other services which include logistics and storage services for chemicals.

In the three months ended September 30, 2009, the Company recorded $102.9 million in revenue which was comprised of $101.1 million revenue in the Chemicals segment, $1.0 million gain in the Finance segment and $0.8 million revenue in the Leisure-time segment, as compared to $145.7 million for the same period in 2008, which was comprised of $142.6 million in the Chemicals segment, $2.3 million in the Finance segment and $0.8 million in the Leisure-time segment. The decrease in Chemicals revenues is primarily attributable to the slowdown in the markets, especially in Europe, which lead the decrease in sold quantities and product prices and due to significant decrease in the demand for chemical carrier shipping. The third quarter revenues slightly increased comparing to the first two quarters of 2009 but the recession is still felt during the third quarter of 2009. The chemical shipping demand is still slow and generates an uneven shipment of chemicals, which in certain voyages, results in almost no cargo being shipped on the return leg of voyage.

The decrease in the Finance segment revenue is primarily related to the revenues from the SWAP agreements.

                                         2009              2008
                                   ----------------- ----------------
                                      (U.S. Dollars in thousands)
                                   ----------------------------------


Expenses:

Chemicals                           $      97,524     $     140,519
Finance                                    27,118            11,550
Leisure-time                                  959               863
                                   --------------    --------------
                                          125,601           152,932
Equity in losses of affiliates                928             1,787
                                   --------------    --------------
Total                               $     126,529     $     154,719
                                   --------------    --------------

In the three months ended September 30, 2009, the Company recorded $126.5 million in expenses which was comprised of $97.5 million of expenses in the Chemicals segment, $27.1 million of expenses in the Finance segment, $1.0 million of expenses in the Leisure-time segment and a net loss of $0.9 million in Equity in losses of affiliates, as compared to $154.7 million in expenses for . . .