As the country's population more than doubled, Israel found itself in desperate need of economic aid. Initially, Israel appealed to the Four Powers occupying Germany, demanding restitution from the Germans for the lives and property lost by the Jewish population. The Four Powers, however, declined to get involved. Left with no other choice, Ben Gurion, the Israeli Prime Minister, reluctantly agreed to consider accepting funds directly from West Germany.

Dr. Nachum Goldmann, the head of the World Jewish Congress, met with German Chancellor Adenauer, who concurred that an initial claim of $1 billion would serve as an apt starting point for negotiations regarding the final amount and method of payment. Upon reaching this juncture, Ben Gurion chose to bring the issue before the cabinet and the Knesset for approval.

Menachem Begin, leader of the Herut party, objected fervently. Addressing a large crowd in Zion Square, just a few blocks from the Knesset, Begin expressed his vehement opposition:

"When you fired at us with cannons, I gave the order 'No!' Today I shall give the order 'Yes!' This will be a battle of life and death. Today, the Jewish Premier is on the verge of declaring that he will go to Germany to receive money, thereby selling the honor of the Jewish people for monetary gain and casting eternal shame upon us. Every German is a Nazi. Every German is a murderer. Adenauer is a murderer. All of his aides are murderers. Yet, they consider money to be our justice. This abomination will be perpetrated for a few million dollars."

Thereafter, Begin implored the crowd to march towards the Knesset. The police failed to halt the demonstrators, and during the ensuing violence both outside and within the Knesset, 92 police officers and 32 civilians were injured. In response, Ben Gurion was compelled to deploy the army to restore order.

The following day, Ben Gurion addressed the nation via radio:

"Yesterday, a malevolent hand was raised against the sovereignty of the Knesset - the beginning of an attempt to destroy democracy in Israel. The leader and instigator of this revolt, Mr. Menachem Begin, stood in Jerusalem's Zion Square yesterday, inciting the crowds... I do not dismiss Mr. Menachem Begin’s proclamation that he is preparing for a battle of life or death. As Premier and Defense Minister, I feel duty-bound to assure the people - have no fear! The state possesses sufficient forces and resources to protect Israel’s sovereignty and freedom, to thwart thugs and assassins from seizing control, and to foil sustained acts of terror within the state. The State of Israel will not be turned into Spain or Syria."

On January 9, the Knesset voted 61 to 50 to authorize the government to negotiate a final agreement with Germany. The ensuing agreement, signed between Foreign Minister Sharett and German Chancellor Adenauer on September 10, 1952, known officially as the Shilumin Agreement, mandated Germany to pay Israel $820 million in goods and services over a span of 12 years. An additional sum of $120 million was allocated to the Jewish Claims Conference for the compensation of Jews residing elsewhere. These sums have incrementally increased over the years. The initial payment of $820 million played a pivotal role in Israel's growth during the 1950s by providing a significant portion of foreign investment.

While the government-to-government agreement was important, the Bonn Federal Indemnity Law of 1954, which provided funds to individual survivors, was equally significant. This law ensured compensation to individual survivors. By 1964, the German government had dispensed 7 billion Deutsche marks to survivors and their heirs, twice the amount provided by the government-to-government agreement. These payments persist to this day.