Since Isreal's defense industry has been subsidized, the country is not used to relying on her own resources for her defense. This is the problem with subsidies. They encourage the organization to which they are given to rely on them. Then, whey the subsidy is removed, that organization is forced to scramble to find the funds to replace the subsidy. This is what would happen in Isreal.
The United States provides substantial resources to help the nation of Israel defend itself from military threats. This defense subsidy is necessary to maintain peace and stability in the turbulent Middle East. If the United States stops helping Israel's defense forces then the tiny nation could be left in peril by leaving it vulnerable to attack.
Obama stopping subsidies of Israel's defense industry will hurt its ability to defend herself, but it is the correct decision. Not because of any ill will towards Israel. But, because we can't afford it. Foreign disputes result in no good the us and only result in more death for our soldiers and unending financial burdens carried by the U.S. taxpayer.
If Israel depends on the United States to fund its military, then it probably shouldn't be so aggressive in "defending" itself against Palestine. The United States has an enormous military, but it pays for it on its own. If Israel wants a large military, it needs to pay for it on its own.