Officials at the Jewish Agency for Israel are saying a $40.5 million budget cut and a radical restructuring ultimately will provide a major boost to itThe agency's cuts from its $300 million core budget next year will include sweeping reductions in programs throughout the world and to its infrastructure in Israel. The organization, which decided on the cuts at its board of governors meeting here last week, also moved closer during the two-day gathering to making landmark changes to the way its lay boards are set up - long a source of acrimony among American Jewish donors. The main drama surrounded the debate over the budget committee's proposal to sever $1m. from the funds it spends on Birthright Israel, the program that takes Diaspora Jews aged 18 to 26 on free 10-day trips to Israel. The proposal was met with fierce opposition, particularly from board members who are professional heads of Jewish federations, and ultimately was shot down. Such programs - stressing the need to build Jewish identity among Diaspora Jews rather than promoting aliya - have become a centerpiece of the agency's efforts to expand its overall mission. The organization has until now been responsible primarily for promoting aliya and absorbing immigrants in Israel. The former chairman of the agency's executive committee, Sallai Meridor, set in motion the transformation by trying to focus on two core issues in addition to aliya: creating Jewish identity through education about Israel and working with vulnerable Jewish populations worldwide. Most of the expanded mission is run through the agency's education department. The department has been integral in developing the MASA initiative, which provides grants to Diaspora Jews of between $3,000 and $5,000 to enroll in longer programs in Israel. MASA is quickly becoming the organization's flagship. Also under the new strategy, the agency's emphasis in the former Soviet Union has shifted from promoting aliya to strengthening the Jewish identity of those who choose to stay there. Alan Hoffmann, the director of the education department, has overseen much of the paradigm shift since joining the organization. He is taking a leave of absence from a faculty position at the Hebrew University in Jerusalem. "When I came in, the American and Israeli communities were talking about closing the education department," he told JTA over coffee at the Crowne Plaza Hotel, the site of the board of governors' meetings. Instead he saw his budget double from $50m. to more than $100m., and tripled his staff from 30 to 90. During Hoffmann's eight years at the agency, the department has created programming aimed at making Israel not just a magnet for immigration, but a source of Jewish identity that can boost Jewish education throughout the world - even for those who have no plans to move to Israel. Among the new programs is Hefziba, a partnership with the Education Ministry that includes a network of 44 Jewish day schools across the former Soviet Union with more than 10,000 students. Hefziba has placed 63 Israeli teachers into the schools in addition to helping develop the curriculum. Another new program, Makom, a partnership featuring the Jewish Agency and Jewish communities in 13 major North American cities, strives to forge bonds between Israeli and American Jews in informal settings such as summer camps. Nowhere in the education department's mission statement "does it mention making aliya," Hoffmann said. While agency officials view such initiatives as key components of the organization's future, they stand to see their budgets cut, especially in the former Soviet Union and in smaller North American cities. Under the fiscal plan approved last week, the agency is slashing $1.9m. from its "Jewish Identity" budget in the former Soviet Union, reducing it to $431,000. Hefziba is being cut from nearly $13m. to just over $5m. It could get worse. The budget was drafted initially in June and only accounted for the $45m. shortfall from last year due to increased costs because of the dollar's fall. (In addition to the $40m. in cuts, the agency plans to ask the Israeli government for an additional $5m.) It did not account for the crash of the economy this fall. The agency will reevaluate its financial situation monthly and may be forced to make further cuts accordingly, especially since it does not know how much money it will be receiving this year from Jewish federations. Agency officials are hoping that a significant restructuring of its governance process could open up financial streams that have been closed. North American philanthropists have long complained that the board of governors was much too politically inclined, and agency officials acknowledge that its structure has been an obstacle to attracting new donors. The 120-member body is comprised of representatives from the World Zionist Organization and the Jewish Agency's two primary funders, the United Jewish Communities/United Israel Appeal - which represent the American Jewish federation system - and Keren Hayesod, which raises money from Canada and Europe. Those organizations, not the agency, choose the board members - an unusual arrangement for a nonprofit. Meanwhile, the WZO has been a major sore point for some major US philanthropists because many of its representative are appointed by religious streams, political parties and Israeli municipalities. Critics say these appointees have used their positions at times to serve their own interests, rather than those of the agency. There have been complaints as well that the Israeli prime minister essentially appoints the chairman of the agency's executive board, the organization's highest professional position. This will change under a plan formalized at last week's meeting that is expected to be ratified in the summer at the next gathering of agency lay leaders. Under the new system the WZO, UJC and Keren Hayesod would no longer pick agency board members. Instead, a nominating committee made up of representatives of each organization - at the same 50-30-20 ratio - would work with the agency to pick board members. In addition, the agency would form similar nominating committees to select its executive board chairman and the chairman of its board of governors, its top lay position. The prime minister would be consulted on the selection of the executive board chairman but would not be required to approve the choice. "I think that it is really to the credit of the constituents that make up the Jewish Agency that they have really put aside individual institutional considerations, recognized the value of the Jewish Agency as a necessary institution for the Jewish people and really have invested in making it the very best, the most modern, the most responsible organization it could be," said Carole Solomon, who previously served as the agency's top lay leader and now is chair of its North American council. "Maybe we can put to rest this box people have had us in for years," she said.