I was was stupefied that Belgium made a foreign aid donation to Saudi Arabia. I found the reason : it was contingent on the Saudis spending about 30x the amount of the donation on weapons made by a plant south of Brussels, with (I'm sure coincidentally) several (then) cabinet members on the board. They bought "weapons for crowd control" with it, because apparently that's what fully automatic machine guns are used for.
I think the issue is that weapons production is an industry that is entirely controlled by government action, both in the positive and negative direction.
Governments forbid certain parts of the market on one hand, and they cheat and lie and deceive everyone so their own weapons manufacturers would see more customers on the other hand. US, Israel, France, even tiny little Belgium all engage in this.
If Israel could get drones from the US it would've eventually killed the Isreaeli drone industry.
Overall what Israel gets on aid they don't make and can't sell.
US aid also comes with a leash Israeli arm sales have congressional oversight ever since the Phalcon deal with China.
Without US aid the Lavi would not have been canned and Israeli Mirage clones like the Nesher and the Kfir are considered one of the best airframes of the time even today.
It is true that Israel is supposed to not export sensitive technology to China, but that is more a factor of being a US ally than strings attached to the aid. Canada also shares a lot of stuff with the US, but does not align themselves with China despite not getting any military aid.
And weapons are fungible. The $3.8 billion in weapons the US provides the state with means that it saves exactly $3.8 billion to spend elsewhere. Giving away free weapons is a very poor job program in comparison to funding jobs that would help the US economy (such as building and repairing infrastructure) rather than hurt it.