Israel's Defence Ministry Director-General Udi Adam is scheduled to visit Croatia on Wednesday and inform the Croatian Defence Ministry that the deal is cancelled, Ynet said.
Adam plans to apologise to Croatian authorities because Israel cannot complete the deal.
Israel and Croatia signed the US$ 500 million deal for 12 F-16 Barak aircraft, modified Israeli versions of US-made fighter jets. The US, however, approves the transfer to a third party only of aircraft without the Israeli upgrades. Croatia would not agree to that and gave Israel until January 11 to say if it can honour the deal as it was signed.