I think noted "neo-con" Richard Perle was the author of a report on this very subject a while back.
Rand Paul was stating a canard. Israel’s foreign policy is not influenced by US aid coming from liberal DC politicians.
And as for foreign aid to Islamist countries (especially those neighboring Israel), well and good that we cut them off, but that means that other countries that fund them merely keep it up or increase their funding. And such countries have quite a bit of antipathy towards Israel.
http://www.israeltoday.co.il/NewsItem/tabid/178/nid/22676/Default.aspx
...Yarden Gazit of the Jerusalem Institute for Market Studies noted that the bulk of the US aid to Israel is for defense purposes, and that according to the stipulations of that aid, Israel must spend 75 percent of the money on US-made weapons and defense systems.
The American aid is also part of a bundle that includes military aid to Egypt, Jordan and Saudi Arabia, countries over which Israel must maintain a qualitative military edge. So, the US provides Israel with the funds to keep its military on top, but at the same time constantly upgrades the surrounding Arab armies to make sure Israel must continuously buy new American weapons.
Gazit explained that the $3 billion from the US is not enough to cover that expense. For example, “every dollar granted to Egypt requires Israel to spend between 1.6 and 2.1 dollars to maintain the balance of power. As a result, every dollar granted to Israel costs Israel between 1.06 and 1.39 dollars.”
By forcing Israel to buy most of its military equipment in the US, Washington is also saddling the Israeli defense industry with an annual loss of $750 million. And because Israel doesn’t buy the systems made by its own defense industry, that hurts the ability of those Israeli contractors to sell their wares abroad...
Also:
http://viewfrommasada.com/2011/05/25/why-american-aid-to-israel-is-bad-for-israel-and-america/