Local reports suggest the deal has already been sealed after the Israeli army was testing several upgraded tanks in Azerbaijan. The T-72s had new fire control systems and armor.

Elbit was competing against the Turkish Aselsan company, while the Israeli defense company said recently that it had been selected by an undisclosed Asian customer for a similar upgrade of battle tanks.

The state-run Azeri Press Agency said the Elbit upgrade would focus on the army's Russian-built Main Battle Tanks. It said the deal would afford Azerbaijan's battle tanks state-of-the-art battle management systems as well as observation and surveillance systems.

Neither Elbit Systems nor the government in Baku provided additional clarifications but the Israeli company recently publicly acknowledged that it had charged $56 million to proceed with a similar modernization program for its undisclosed Asian partner.

Azerbaijan has a fleet of 180 Russian-made T-72 tanks, more than one-third of them purchased in 2009.

"The selection of Elbit Systems underlines the company's efforts to gain a stronger foothold in the South Caucasian country," Defense Professional reported.

Azerbaijan has a persistent border issues with neighboring Armenia.

Elbit has a long-standing cooperation with the Azeri Ministry of Defense, particularly in the production of unmanned aerial vehicles. Last year the Defense Ministry moved to forge closer ties with both Israelis and Turkish companies inviting them both to cooperate in the joint production of armored combat vehicles, including tracked fighting vehicles and bridge layers.

Since then also, Elbit has set up an office in Baku.

"Our selection for this upgrade project, following previous projects we carried out for this customer, attests to the high level of satisfaction with our systems and performance," Joseph Ackerman, Elbit Systems' president and chief executive officer, said in a company statement.

The deal comes as Turkey and Azerbaijan are negotiating the joint production of small arms and ammunition.

A preliminary deal has already been signed for the production of hand-held grenade launchers. The concluded agreement, though, focus on the creation of the IST-12.7 sniper weapon by a group of Azerbaijani specialists.

Experts anticipate joint production to begin by the close of 2011.

Currently, Azerbaijan's state agency reported, the "Defense Industry Ministry is implementing the production of 5x45mm and 7x62mm bullets on the basis of technologies by the Mechanical and Chemical Industry Corp."

Azerbaijan recently announced that it will spend $3.28 billion in defense next year, making it one of the top priorities in the 2011 state budget.

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