U.S. defense aid to Israel is likely to increase after 2017, sources on both sides said on Thursday, seeing a possible link to Washington’s efforts to assuage its ally’s fears over nuclear diplomacy with Iran.

A current package worth $3 billion a year expires in 2017. A U.S. official, speaking to Reuters on condition of anonymity, said negotiators were close to a new deal that would bring annual payouts to $3.6-$3.7 billion on average.

An Israeli official, who also declined to be named, put the expected aid at between $3.5 billion and $4 billion. […]