Israel and the U.S. decided to postpone a large joint military exercise scheduled to take place in May after Iran interpreted the joint drill as a threat, diplomatic officials in Jerusalem said Sunday night, a day after reports initially attributed to the IDF Spokesperson's Unit said the drill's cancellation was due to budgetary constraints.

The Israel Defense Forces and U.S. Army said on Sunday that they were indefinitely postponing the exercise, which was expected to include thousands of soldiers from both countries.

While an official reason was not given, diplomatic officials in Jerusalem told Israel Hayom that the drill was postponed to avoid any moves that could heat up the region amid already high tensions between the U.S. and Iran.

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The officials said the exercise was pushed back to the second half of 2012 so that "it would not provoke any undesired moves," and that this "was necessary in light of the security situation." Other government sources however claimed on Sunday that the exercise was postponed due to budgetary considerations by the two countries after the U.S. cut its defense budget again in 2012, although it is unclear if these considerations indeed factored into the decision.

Tensions between Iran and the U.S. have risen again in the past week. Iran started an underground uranium enrichment plant and sentenced an American to death for spying. Washington and Europe have stepped up efforts to cripple Iran's oil exports, and Tehran on Wednesday blamed U.S. and Israeli agents for killing an Iranian nuclear scientist. Tehran has threatened to block the strategic Strait of Hormuz, the passage for one-sixth of the world's oil, should international sanctions block Iran's petroleum exports, and recently completed two rounds of naval war games in and around the strategic waterway. The U.S. and U.K. have both sent naval strike groups to the Persian Gulf to bolster their forces in the face of the Iranian threat. According to a New York Times report published last Friday quoting U.S. government officials, the U.S. is using a secret channel of communication to warn Iran that if it closes the strategic Strait of Hormuz it will be crossing a “red line” that will provoke a U.S. response.

The drill, dubbed "Austere Challenge 12," was described as "the largest drill ever to be conducted by the country" and was also supposed to be the largest ever held between Israel and the U.S. It was designed to improve air defense systems and cooperation between the U.S. and Israeli military forces, and the Israel Air Force had already set up a special administration ahead of the exercise. Its actions will now be postponed as a result of the change.

Among other components, the drill was expected to test multiple Israeli and U.S. air defense systems against incoming missiles and rockets, including the Iron Dome, Magic Wand and Arrow 3 systems. Israel has deployed the Arrow system, jointly developed with and funded by the U.S., to intercept Iranian missiles in the stratosphere, far from Israeli airspace.

U.S. Defense Secretary Leon Panetta said last month that the drill exemplified unprecedented levels of defense cooperation between the two countries meant to back up Washington's "unshakable" commitment to Israel's security.

Meanwhile, U.S. Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey is expected to travel to Israel this week, where he is slated to discuss security issues, particularly the Iranian threat, with IDF Chief of Staff Lt. Gen. Benny Gantz and other top defense officials. The meeting comes against the backdrop of increasing U.S. concern over a possible Israeli strike against Iran and follows a Wall Street Journal report over the weekend that Washington has boosted "contingency planning" to safeguard U.S. military bases across the Middle East in the event of a military confrontation.

Israeli officials denied on Sunday reports that there have been recent disputes between Jerusalem and Washington over the Iranian issue. "We have significant common interests with the U.S.," Intelligence and Atomic Energy Minister Dan Meridor said. "The goal is to recruit as much international support as possible to persuade world leaders to stop [Iran's] nuclear program. Pressure on Iran is intensifying, and we have clear information that [the Iranians] are not happy with this and are trying to prevent the continuation of this [pressure]. This process requires determination and dedication. Sanctions need to be expanded and on a regular basis, becoming stronger every month."

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