American Israeli Paper Mills Ltd. Opts for Natural Gas

Hadera, Israel, 14 May 2007 - American Israeli Paper Mills Ltd. (AIPM) (AMEX:AIP) announced that its board of directors approved the signing of an agreement with East Mediterranean Gas Company (EMG) for the purchase of natural gas from Egypt.

The agreement describes the principles for the negotiations toward the conclusion of a detailed agreement for the purchase of gas.

The company is taking steps to convert its energy generation facilities from the use of fuel oil to natural gas once the natural gas pipeline to Hadera is completed, which is expected to happen this year. The conversion from fuel oil to gas will enable significant savings in fuel costs and further improvement in air quality.

In July 2005, AIPM signed an agreement for the purchase of natural gas with Yam Tethys Group to provide its requirements in natural gas until mid-2011 for the currently operating facility in its Hadera site. The new agreement with EMG provides for the continued availability of gas, for the following 15 years. In addition, the agreement allows AIPM, within a limited timetable, to increase the contracted quantities to serve the needs of a new power plant being planned by AIPM.

The estimated annual purchase from EMG will range from $10 million up to $50 million, according to the quantities acquired and the prevailing prices. Bank and corporate guarantees, of an order of one year purchase, will be provided by AIPM, when signing the detailed agreement.