A dispute between the Defense Ministry and the Finance Ministry has persuaded the former to approve laying off 500 Israel Military Industries employees.The latest crisis was caused by the failure of IMI employees to receive their June salary Sunday. Sources in the Defense Ministry have blamed the Finance Ministry fo allegedly breaching previous inter-ministerial agreements, under which the Finance Ministry and Rafael Advanced Defense Systems Ltd. would pay the June salaries of IMI’s 3,000 employees as part of the plan formulated at the start of 2011 to merge IMI and Rafael.For the past two years, the Defense Ministry been paying the IMI employees salaries, while a solution has been sought for the troubled government-owned company. At the start of 2011, it was decided to shelve plans to privatize IMI, and rather merge it with another government owned company. Both Rafael and Israel Aerospace Industries have expressed interest, as have some privately owned companies including Elbit Systems Ltd. and Plasson Industries from Kibbutz Sasa.After much debate, it was decided that IMI would merge with Rafael because of the synergy between the two companies.As part of this merger, IMI's board of directors asked to fire 500 employees that cost the company $200 million per year. Defense Minister Ehud Barak and the ministry’s director-general Udi Shani asked IMI to hold back with the cuts until a permanent solution to the company’s problems was found.But on Sunday, in the wake of the Finance Ministry and Rafael’s refusal to pay IMI’s salaries, Shani wrote to IMI’s board of directors giving them the green light to lay off 500 employees.Over the past two months talks for the sought-after merger between IMI and Rafael have stalled. Sources close to the talks say that it has not been possible to reach financial understandings that would make it possible for the companies to merge.IMI said that the finance and defense ministries are working to find a solution for the company's past problems, through changing the ownership structure and finding a solution to salary payments for employees.IMI’s workers committee said that it is working with Histadrut labor federation chief Ofer Eini to solve the problem of the unpaid salaries and hopes salaries will have been paid by Monday morning.