~~Contact:~~ FORM 6-K

~~Danny Yelin~~ ~~CFO Arel~~SECURITIES ~~Communications~~AND &EXCHANGE ~~Software Ltd. Tel: (972)-8-9420880 dyelin@arel.net~~COMMISSION

~~Arel~~Washington, ~~Announces~~D.C. ~~Third Quarter of 2002 results~~20549

~~Operating~~ Report ~~Expenses~~of ~~cut~~Foreign ~~by 35% compared to Q2 Cash position remains stable at approximately $11,000,000~~Issuer

~~YAVNE,~~ Pursuant ~~Israel~~to rule 13a-~~November~~16 ~~27,~~or ~~2002~~15d-16 ~~Arel~~of ~~Communications~~the ~~and~~Securities ~~Software~~Exchange ~~Limited~~Act ~~(NASDAQ:~~of ~~ARLC) announces~~1934for ~~that it has substantially reduced its expense structure. The Company has cut its operating expenses in~~ the ~~third quarter by approximately $860,000, which~~month ~~represents~~ ~~a decrease~~ of ~~more than 35% compared to its Q2 level. This has resulted primarily from a decrease in headcount~~June, ~~as well as reductions in office space utilization and lease terminations. The Company expects to operate at this reduced level of SG&A expenses in the fourth quarter of 2002 as well.~~2003

~~Arel~~ AREL isCOMMUNICATIONS ~~also~~AND ~~experiencing~~SOFTWARE ~~a stablization in its cash resources, which, as of November 25, 2002, were approximately $11,000,000~~LTD. ~~The~~ ~~decrease~~(Translation ~~in our cash position during the third quarter~~ of ~~2002~~registrant's ~~was~~name ~~less~~in ~~than~~English) ~~$180,000.~~

~~Philippe~~3 ~~Szwarc,~~Hayarden ~~the recently appointed Chief Executive Officer of Arel~~Street, ~~comments: "We are pleased with the progress achieved in implementing our restructuring plan~~Yavne, ~~and encouraged that more than 80% of our quarterly losses are due to non-recurring events, which~~Israel ~~had~~(Address ~~extremely limited impact on our cash reserve. Furthermore, Arel is currently negotiating for the sale~~ of ~~its~~principal ~~IDEAL~~executive ~~e-learning solution~~offices) to several Fortune 500 customers. If any of these transactions are completed, we expect that the revenues generated from these contracts will start showing clear improvement of our revenues in the coming quarters."

~~Arel~~Indicate ~~also~~by ~~announced today~~check ~~the consolidated results~~mark ~~for~~whether the ~~third~~registrant ~~quarter~~files ~~and~~or ~~nine~~will ~~months, ended September~~file ~~30, 2002. Arel reported~~annual ~~that~~ reports ~~third~~under ~~quarter~~cover ofForm ~~2002~~20-F ~~revenues from~~or ~~sales~~Form ~~and services were $829,000 a 23% decrease over the $1,071,000 reported in the second quarter of 2002, and a decrease of 64% compared to revenues of $2,274,000 reported in the third quarter of 2001~~40-F.

~~Net~~Form ~~pro~~20-~~forma~~F ~~loss~~x inForm ~~the third quarter of 2002 was $1,518,000, down 38% compared to net pro~~40-~~forma~~F ~~loss of $2,465,000 reported in the second quarter of 2002, and up 32% compared to net pro-forma loss of $1,148,000 reported in the third quarter of 2001.~~o

InIndicate ~~the~~by ~~third~~check ~~quarter~~mark ofwhether ~~2002~~the ~~Arel~~registrant ~~recorded non-cash, one-time charges~~by ~~that~~furnishing ~~include: a)~~ the ~~impairment~~information ~~and amortization of goodwill~~contained ~~resulting~~ in ~~from~~this ~~the~~Form ~~acquisition~~is ofalso ~~W2COM~~thereby ~~for~~furnishing athe ~~value~~information ofto ~~$4,575,000; b)~~the anCommission ~~adjustment~~pursuant ofto ~~$279,000 resulting from a decrease in value of~~Rule ~~Arel's investment in Arelnet. In addition Arel recorded a one~~ 12g3-~~time restructuring expense~~2(b) ~~of $1,671,000. The~~under ~~net loss for third quarter of 2002, including all~~ the ~~above-mentioned charges, was~~ ~~$8,043,000, compared~~Securities toExchange aAct ~~net loss~~ of ~~$18,735,000 reported in the third quarter of 2001~~1934.

~~Pro-forma loss~~Yes ~~per~~o ~~share~~No in the third quarter of 2002 was $0.12 basic and fully diluted, compared to pro-forma loss per share of $0.09 in the third quarter of 2001. Loss per share in the third quarter of 2002 (including all the above-mentioned one-time charges) was $0.63 basic and fully diluted, compared to a $1.46 basic and fully diluted loss per share for the same period in 2001.x

~~Gross~~ This ~~profit~~Form ~~for~~6-K ~~the~~is ~~third quarter~~incorporated ofby ~~2002~~reference ~~was~~into ~~$105,000~~the aRegistrant's Post-Effective ~~decrease~~Amendment ofNo. ~~78% compared~~1 toon ~~$476,000~~Form inF-3 ~~the~~to ~~second quarter~~Registration ofStatement ~~2002, and a~~on ~~decrease~~Form ofF-1 ~~90%~~under ~~compared~~the toSecurities $1Act of 1933,~~089,000~~ ~~for~~declared ~~the~~effective ~~third~~on September ~~quarter~~2, of1999 ~~2001~~(Registration No. 333-10684).

~~Revenues~~ This ~~for~~Form ~~the first nine months of 2002 were $4,646,000 a decrease of 32% compared to the nine-month 2001 revenues of $~~6~~,840,000. Net pro~~-~~forma loss~~K ~~for~~is ~~the~~incorporated ~~first~~by ~~nine~~reference ~~months~~into ~~of 2002 was $4,837,000 (excluding~~ the ~~non cash one time charges of: the impairment and~~Registrant's ~~amortization of goodwill from~~Post-Effective ~~the acquisition of~~Amendment ~~W2COM~~No. ~~of $4,858,000, the adjustment of $279,000 for~~1 ~~the~~on ~~decline~~Form ~~in value of investment in Arelnet, as well as the one~~F-~~time restructuring expense~~3 ~~of $1,671,000), compared~~ to aRegistration ~~pro-forma~~Statement ~~net loss of $4,535,000~~on ~~(excluding~~Form ~~the~~F-1 ~~non~~under ~~cash one time charges of: impairment and amortization of goodwill from~~ the ~~acquisition~~ ofSecurities ~~W2COM~~Act of ~~$16,229,000, the adjustment~~ ~~of $1~~1933,~~941,000 for~~ ~~the~~declared ~~decline~~effective inon ~~value of investment in Arelnet, as well as the one time restructuring charges of~~June ~~$961~~28,~~000), reported~~ ~~for~~2000 ~~the~~(Registration ~~first nine months of 2001~~No. ~~The~~ ~~net loss for the first nine months of 2002 was $11,645,000 compared to a net loss of $23,666,000 reported for the first nine months of 2001~~333-12076).

Pro-forma lossAREL perCOMMUNICATIONS shareAND forSOFTWARE the first nine months of 2002 was $0LTD.38 basic and fully diluted (excluding all the above-mentioned non-cash one-time charges), compared to a pro-forma loss per share of $0.35 basic and fully diluted, for the comparable 2001 period. Loss per share for the first nine months of 2002 was $0.90 basic and fully diluted (including all the above-mentioned non-cash one-time charges), compared to $1.84 basic and fully diluted earnings per share for the comparable 2001 period (including loss from discontinued operation and including goodwill amortization).

GrossNOTICE profitOF forA theSPECIAL firstGENERAL nineMEETING monthsOF of 2002 was $1,681,000, a decrease of 52% compared to $3,488,000 for the first nine months of 2001. During the first nine months of 2002, the net expenses in R&D activities were $1,691,000, an increase of 12% compared to $1,507,000 for the comparable 2001 period. Arel continues the development of Arel's product line which seamlessly integrates real-time streaming video, high-resolution graphics, full-duplex audio, two-way data interaction, and application sharing capabilities providing the most advanced and powerful Interactive Distance Learning and Enterprise Communications solutions available.SHAREHOLDERS

AboutJuly Arel16, Communications and Software2003

~~Arel~~ Notice is ~~Communications~~hereby ~~and~~given ~~Software, Ltd.,~~that ~~Yavne, Israel~~a ~~and~~Special ~~its~~General ~~U.S. subsidiaries, Arel Communications~~Meeting ~~and~~of ~~Software, Inc., and Arel Learning Solutions Inc., (www.arel.net) market~~ the ~~IDEAL~~shareholders ~~family~~ of ~~products, including its innovative Internet Protocol-based Spotlight application. IDEAL~~ isArel aCommunications and ~~fully~~Software ~~integrated, enterprise-wide, scalable~~Ltd. ~~solution~~(the ~~that~~“Company”) ~~delivers~~will ~~live,~~be ~~interactive~~held ~~training~~at ~~and corporate communications. Arel Spotlight is~~the ~~a browser-based application that offers both on-line (synchronous) and off-line~~Company’s ~~(asynchronous) content~~offices onat a3 ~~single~~Hayarden ~~platform~~St. ~~Powered~~, byYavne, ~~Arel's~~Israel, ~~IDEAL~~on ~~engine~~July 16, ~~Spotlight integrates authoring~~ ~~and~~2003 ~~management tools, interactive~~at ~~delivery,~~11:00 ~~evaluation,~~(Israel ~~analysis,~~time) ~~tracking~~for ~~and~~the following ~~reporting.~~purposes:

~~Arel~~1. ~~IDEAL™~~To ~~and~~appoint ~~Arel~~one ~~Spotlight™~~outside ~~are~~director ~~trademarks~~to the Board of ~~Arel~~Directors ~~Communications~~of ~~and~~the ~~Software. All~~Company ~~other~~for ~~trade~~the ~~names~~three ~~are~~year period commencing from the ~~properties~~date of ~~their~~ ~~respective~~her ~~owners~~appointment.

~~Certain statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation~~ Shareholders ~~Reform Act~~ of ~~1995.~~record ~~The~~at words "estimate", "project", "intend", "expect", "believe", "hopeful" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known unknown risks and uncertainties. Many factors could cause the ~~actual results, performance or achievements~~ close of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic and business ~~conditions, inability~~ toon ~~maintain~~June ~~market acceptance to the Company's products~~9, ~~inability~~ ~~to timely develop and introduce new technologies~~2003, ~~products~~ ~~and applications, rapid~~will ~~changes~~be inentitled ~~the market for the Company's products, loss of market share and pressure on prices resulting from competition, introduction of competing products by other companies, inability~~ to ~~manage~~notice ~~growth and expansion, loss~~ of ~~key partners~~, ~~inability~~ ~~to attract~~ and ~~retain qualified personnel, inability~~ to ~~protect~~vote the Company's proprietary technology and risks associated with the Company's international operations and its location in Israel. For additional information regarding these and other risks and uncertainties associated with the Company's businessat, ~~reference~~ ~~is made to~~ the ~~Company's reports filed from time to time with the Securities and Exchange Commission~~meeting.

~~(Tables~~ Shareholders who do not expect to ~~follow)~~attend the meeting in person are requested to mark, date, sign and mail the enclosed proxy as promptly as possible in the enclosed stamped envelope.

~~AREL~~By ~~COMMUNICATIONS~~Order ~~AND~~of ~~SOFTWARE~~the ~~LTD. (An~~Board ~~Israeli~~of ~~Corporation) CONDENSED~~Directors, ~~CONSOLIDATED~~Izhak ~~BALANCE~~Gross ~~SHEETS AT~~Chairman ~~SEPTEMBER~~of ~~30,~~the ~~2002~~Board of Directors Arel Communications and Software Ltd.

~~September~~June ~~30 December 31~~10, 2002 2001 2001 (Unaudited) (Audited) U.S. ~~dollars~~2003 in thousands A s s e t s CURRENT ASSETS: Cash and cash equivalents 6,107 6,341 5,382 Short-term investments 4,606 8,247 8,340 Accounts receivable: Trade 1,902 3,486 3,505 Other 439 695 716 Inventories 1,142 2,388 2,265 ------ ------ ------ T o t a l current assets 14,196 21,157 20,208 ------ ------ ------ INVESTMENTS AND LONG-TERM RECEIVABLE: Investment in Arelnet Ltd. 125 1,353 404 Loans to employees, net of current maturity 32 63 41 ------ ------ ------ 157 1,416 445 ------ ------ ------ PROPERTY, PLANT AND EQUIPMENT: Cost 2,333 3,338 3,906 L e s s - accumulated amortization 1,530 1,180 1,862 ------ ------ ------ 803 2,158 2,044 ------ ------ ------ GOODWILL, net of provision for impairment and accumulated amortization - 5,000 4,858 ------ ------ ------ 15,156 29,731 27,555 ====== ====== ====== Liabilities and shareholders' equity CURRENT LIABILITIES: Short-term bank credit 13 56 16 Accounts payable and accruals: Trade 884 1,025 890 Accrued restructuring costs 607 Other 3,353 4,692 4,594 ------ ------ ------ T o t a l current liabilities 4,857 5,773 5,500 ------ ------ ------ LONG-TERM LIABILITIES: Liability for employee rights upon retirement, net of amount funded 261 342 311 Other 8 93 69 ------ ------ ------ T o t a l long-term liabilities 269 435 380 ------ ------ ------ T o t a l liabilities 5,126 6,208 5,880 ------ ------ ------ SHAREHOLDERS' EQUITY: Share capital 4 4 4 Capital surplus 52,740 52,740 52,740 Warrants 1,395 1,395 1,395 Accumulated deficit (44,109) (30,616) (32,464) ------ ------ ------ 10,030 23,523 21,675 ------ ------ ------ 15,156 29,731 27,555 ====== ====== ======

2PROXY STATEMENT

AREL COMMUNICATIONS AND SOFTWARE LTD. (An Israeli3 Corporation) CONDENSEDHayarden CONSOLIDATEDSt. STATEMENTSYavne OF OPERATIONS FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2002Israel

NineSPECIAL months ended Three months ended Year ended September 30 September 30 December 31, 2002 2001 2002 2001 2001 (Unaudited) (Unaudited) (Audited) U.S. dollars in thousands(except per share data) REVENUES FROM SALES AND SERVICES 4,646 6,840 829 2,274 9,412 COST OF SALES AND SERVICES 2,965 3,352 724 1,185 4,321 ------- ------- -------- ------- ------- GROSS PROFIT 1,681 3,488 105 1,089 5,091 RESEARCH AND DEVELOPMENT EXPENSES - net 1,691 1,507 492 584 1,943 SELLING, GENERAL ANDMEETING ADMINISTRATIVE EXPENSES 5,069 7,222 1,161 1,891 9,323 AMORTIZATION OF GOODWILL 283 1,653 557 1,795 IMPAIRMENTSHAREHOLDERS OFTo GOODWILL 4,575 14,576 4,575 14,576 14,576 RESTRUCTURINGbe EXPENSESheld ANDon IMPAIRMENTJuly OF PROPERTY16, PLANT AND EQUIPMENT 1,671 961 1,671 513 961 ------- ------- -------- ------- ------- OPERATING INCOME (LOSS) (11,608) (22,431) (7,794) (17,032) (23,507) FINANCIAL INCOME (EXPENSES) - net 246 706 34 238 883 IMPAIRMENT OF INVESTMENT IN ARELNET LTD. (279) (1,941) (279) (1,941) (2,890) ------- ------- -------- ------- ------- LOSS BEFORE TAXES ON INCOME (11,641) (23,666) (8,039) (18,735) (25,514) TAXES ON INCOME 4 4 ------- ------- -------- ------- ------- NET LOSS FOR THE PERIOD (11,645) (23,666) (8,043) (18,735) (25,514) ======= ======= ======= ======= ======= BASIC AND DILUTED LOSS PER SHARE (0.90) (1.84) (0.63) (1.46) (1.98) ======= ======= ======= ======= ======= Net loss for the period as reported (11,645) (23,666) (8,043) (18,735) (25,514) Adjustments to reconcile net loss for the period to net loss excluding unusual items: Amortization of goodwill 283 1,653 557 1,795 Impairment of goodwill 4,575 14,576 4,575 14,576 14,576 Restructuring expenses and impairment of property, plant and equipment 1,671 961 1,671 513 961 Impairment of investment in Arel Net Ltd. (279) (1,941) (279) (1,941) (2,890) ------- ------- -------- ------- ------- Net loss excluding unusual items: (4,837) (4,535) (1,518) (1,148) (5,292) ======= ======= ======= ======= ======= Basic and diluted loss per share excluding unusual items (0.38) (0.35) (0.12) (0.09) (0.42) ======= ======= ======= ======= ======= 2003

3INTRODUCTION

~~AREL~~ This Proxy ~~COMMUNICATIONS~~Statement ~~AND~~is ~~SOFTWARE~~being ~~LTD~~furnished to shareholders of Arel Communications and Software Ltd., an Israeli corporation (“Arel” or the “Company”), in connection with the solicitation of proxies by the board of directors of Arel (Anthe “Board ~~Israeli~~of ~~Corporation~~Directors”) for use at a Special General Meeting of ~~CONDENDSED~~shareholders ~~STATEMENTS~~to OFbe ~~CHANGES~~held INon ~~SHAREHOLDERS'~~July ~~EQUITY~~16, 2003 and at any adjournment thereof (the ~~FOR~~“Shareholders ~~THE~~Meeting”). ~~NINE~~This ~~AND~~Proxy ~~THREE~~Statement ~~MONTH~~and ~~PERIODS~~the ~~ENDED~~accompanying ~~SEPTEMBER~~form of 30proxy are being mailed to our shareholders on or about June 10, ~~2002~~2003.

SharePURPOSE capital NumberOF of Capital Accumulated shares Amount surplus Warrants Deficit Total U. S. dollars in thousands BALANCE AT JANUARY 1, 2002 (audited) 12,853,739 4 52,740 1,395 (32,464) 21,675 CHANGES DURING THE 9SHAREHOLDERS MONTHS ENDED SEPTEMBER 30, 2002 (unaudited): Loss (11,645) (11,645) Exercise of warrants and options ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2002 (unaudited) 12,853,739 4 52,740 1,395 (44,109) 10,030 ========== ========== ========== ========== ========== ========== BALANCE AT JANUARY 1, 2001 (audited) 12,853,739 $ 4 $ 52,738 $ 1,395 $ (6,950) $ 47,187 CHANGES DURING THE 9 MONTHS ENDED SEPTEMBER 30, 2001 (unaudited): Loss (23,666) (23,666) Exercise of warrants and options 2,000 * 2 2 ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2001 (unaudited) 12,855,739 4 52,740 1,395 (30,616) 23,523 ========== ========== ========== ========== ========== ========== BALANCE AT JULY 1, 2002 (unaudited) 12,855,739 $ 4 $ 52,740 $ 1,395 $ (36,066) $ 18,073 CHANGES DURING THE 3 MONTHS ENDED SEPTEMBER 30, 2002 (unaudited): Loss (8,043) (8,043) ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2002 (unaudited) 12,855,739 $ 4 $ 52,740 $ 1,395 $ (44,109) $ 10,030 ========== ========== ========== ========== ========== ========== BALANCE AT JULY 1, 2001 (unaudited) 12,855,739 $ 4 $ 52,740 $ 1,395 $ (11,881) $ 42,258 CHANGES DURING THE 3 MONTHS ENDED SEPTEMBER 30, 2001 (unaudited): Loss (18,735) (18,735) ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2001 (unaudited) 12,855,739 $ 4 $ 52,740 $ 1,395 $ (30,616) $ 23,523 ========== ========== ========== ========== ========== ========== MEETING

* Represents At the anShareholders ~~amount~~Meeting, ~~less~~the ~~than~~shareholders $of ~~1,000~~Arel will be asked to consider and vote upon the following matter:

41. To appoint one outside director to our board of directors for the three year period commencing from the date of her appointment.

AREL COMMUNICATIONS AND SOFTWARE LTD. (An Israeli Corporation) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)VOTING

~~Nine months ended~~ Only ~~September~~holders ~~30 2002 2001 U.S.~~of ~~dollars~~record inof ~~thousands CASH~~our ~~FLOWS~~ordinary ~~FROM~~shares, ~~OPERATING~~nominal ~~ACTIVITIES: Net~~value ~~loss~~NIS ~~for~~0.001 ~~the~~per ~~period (11~~share,~~645) (23,666) Adjustments~~ ~~required~~at tothe ~~reconcile~~close of ~~net~~business ~~income~~on toJune ~~net cash~~9, ~~used~~2003 in(the ~~operating~~“Meeting ~~activities: Depreciation 500 607 Impairment~~Record ~~of property~~Date”), ~~plant~~are ~~and~~entitled ~~equipment 750~~to ~~Amortization~~vote ofat ~~goodwill 283 1,653 Impairment~~the ofShareholders ~~goodwill 4,575 14,576 Decline~~Meeting. inAs ~~value~~ of ~~investment~~such indate, ~~Arel~~we ~~Net~~had ~~Ltd. 279 1~~13,~~941 Allowance~~128,466 ~~for~~ordinary ~~doubtful accounts 101 65~~shares ~~Accrued~~outstanding ~~employee~~and ~~rights~~entitled ~~upon~~to ~~retirement~~vote -on ~~net (50) (14) Capital~~the ~~loss~~Meeting onRecord ~~disposal~~Date of(without ~~plant~~taking ~~and~~into ~~equipment 45 61~~account ~~Loss~~options ~~on realization~~ and ~~decrease~~warrants into ~~value~~purchase ofour ~~marketable~~ordinary ~~securities 17 7 Erosion~~shares). ofEvery ~~long-term~~ordinary ~~loan~~share towill ~~an employee 4 2~~entitle ~~Changes~~its inholder ~~operating~~to ~~asset~~one ~~and~~vote ~~liability~~upon ~~items: Decrease~~each inof ~~accounts~~the ~~receivable 1779 5,217 Decrease~~matters into ~~accounts~~be ~~payable~~presented ~~and~~at ~~accruals (701) (1,041) Decrease~~the ~~(Increase) in inventories 1,123 (107)~~Shareholders ~~------ ------ Net~~Meeting. ~~cash~~All ~~used~~such inshares ~~operating~~entitled ~~activities (2,940) (699) ------ ------ CASH~~to ~~FLOWS~~vote ~~FROM~~at ~~INVESTING~~the ~~ACTIVITIES: Purchase~~meeting ofare ~~property,~~referred ~~plant~~to ~~and~~herein ~~equipment (138) (155)~~as ~~Proceeds~~“Record ~~from~~Shares”. ~~disposal~~A ofquorum ~~property,~~must ~~plant~~be ~~and~~present ~~equipment 84 114 Collection~~in oforder ~~long-term~~for ~~loan~~the ~~from~~Shareholders Meeting anto ~~employee 5 7 Short-term~~be ~~bank~~held. ~~deposits~~The -presence ~~net 3,696 (6,432) Investment~~in Inperson ~~Arelnet~~or ~~Ltd. (911) Acquisition~~by proxy of ~~marketable~~at ~~securities (4) Proceeds~~least ~~from~~two ~~sale~~shareholders holding ofRecord ~~marketable~~Shares ~~securities 25 303 ------ ------ Net~~that ~~cash~~are ~~provided~~entitled byto ~~(used~~vote in) ~~operating~~the ~~activities 3,668 (7,074) ------ ------ CASH~~aggregate ~~FLOWS~~at ~~FROM~~least ~~FINANCING~~51% ~~ACTIVITIES: Short-term~~of ~~bank~~the ~~credit~~votes of -all ~~net (3) 34 Exercise~~holders of ~~warrants~~Record ~~and~~Shares ~~options 2 ------ ------ Net~~will ~~cash~~constitute ~~provided~~a byquorum ~~(used~~for ~~in) financing~~the ~~activities (3) 36 ------ ------ NET~~transaction ~~INCREASE~~of ~~(DECREASE)~~business at INthe ~~CASH~~Shareholders ~~AND~~Meeting. ~~CASH~~Our ~~EQUIVALENTS 725 (7,737) BALANCE~~Articles OFof ~~CASH~~Association ~~AND~~do ~~CASH~~not ~~EQUIVALENTS~~permit ATcumulative voting ~~BEGINNING~~for OFthe PERIOD 5,382 14,078 ------ ------ BALANCEelection OFof ~~CASH~~directors ~~AND~~or ~~CASH~~for ~~EQUIVALENTS~~any ~~AT END~~other OFpurpose. PERIOD 6,107 6,341 ====== ======

5 The proposal to be presented at the Shareholders Meeting requires the affirmative vote of shareholders present in person or by proxy and holding Record Shares amounting in the aggregate to at least: (i) a majority of the votes actually cast with respect to such proposal, including the affirmative vote of at least one third of the votes of shareholders present in person or by proxy at the Shareholders Meeting that are not controlling shareholders of the Company (as such term is defined in the Israel Securities Law, 1968) or (ii) the majority of votes at the Shareholders Meeting on condition that the total of opposing votes from among the non-controlling shareholders does not exceed 1% of all the voting rights in the Company.

Abstentions and broker non-votes are counted as shares present for the determination of a quorum.

If within one-half hour from the time established for the commencement of the Shareholders Meeting a quorum is not present, the meeting shall stand adjourned to the same day in the next week, July 23, 2003, at the same time and place or, if the board of directors so decides, to such other day, time and place as shall be determined by the board of directors by notice to the shareholders and if at such adjourned meeting a quorum is not present within one-half hour from the time appointed for holding the meeting, two members present in person or by proxy shall constitute a quorum.

PROXIES

The enclosed proxy is being solicited for use at our Special General Meeting of shareholders to be held on July 16, 2003, or at any adjournment thereof. Proxies are being mailed and/or delivered in person to shareholders on or about June 10, 2003. We will bear the cost of the preparation and mailing of the proxy materials and the solicitation of proxies. Copies of solicitation materials will be furnished to brokerage firms, nominees, fiduciaries and other custodians for forwarding to their principals, and the reasonable fees and expenses of such forwarding agents will be borne by us.

All Record Shares represented by properly executed proxies received by us at least twenty-four (24) hours prior to the meeting will, unless such proxies have been previously revoked, be voted at the Shareholders Meeting in accordance with the directions on the proxies. A shareholder may vote in favor of the proposal or against the proposal or may abstain from voting on the proposal. Shareholders should specify their choice on the accompanying proxy card. If no direction is indicated on the properly executed proxy, the shares will be voted in favor of the resolution proposed at the Shareholders Meeting. A shareholder returning a proxy may revoke it at any time up to one (1) hour prior to commencement of the meeting by: (i) communicating such revocation in writing to our Chief Financial Officer, or (ii) by executing and delivering a later-dated proxy. In addition, any person who has executed a proxy and is present at the Shareholders Meeting may vote in person instead of by proxy, thereby canceling any proxy previously given, whether or not written revocation of such proxy has been given. Any written notice revoking a proxy should be sent to Arel Communications and Software Ltd., 3 Hayarden Street, Yavne, Israel, 70600, Attention: Chief Financial Officer.

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of May 1, 2003, the number of our ordinary shares, owned by (i) all shareholders known by the Company to own more than 5% of the ordinary shares and (ii) the officers and directors as a group.

	Ordinary Shares/Options Owned⁽¹⁾
Name and Address	Number	Percent (see attached Excel)
Izhak Gross 3 Hayarden Street Yavne 70600, Israel	992,619⁽²⁾	7.48%
Polar Communications Ltd. 21 Ha'arba'a Street Tel Aviv 64739, Israel	2,453,271	18.69%
Clayton L Mathile TTEE 10 Courthouse Pl SW Suite 1100, Dayton OH 45402, USA	1,076,458⁽³⁾	8.20%
W2COM, LLC 10 Courthouse Pl SW Suite 1100, Dayton OH 45402, USA	1,053,994	8.03%
Mitchell E. Jones 10 Courthouse Pl SW Suite 1100, Dayton OH 45402, USA	1,263,150⁽⁴⁾	9.53%
All officers and directors as a group (4 persons)	3,555,688⁽⁵⁾	25.88%

(1) The table above includes the number of shares underlying options that are exercisable within 60 days of May 1, 2003. Ordinary shares subject to these options are deemed beneficially owned for the purpose of computing the ownership percentage of the person or group holding these options, but are not deemed outstanding for purposes of computing the ownership percentage of any other person. To our knowledge, the persons and entities named in the table have sole voting and dispositive power with respect to all shares shown as beneficially owned by them, except as described below.

(2) Includes options to purchase 150,000 ordinary shares at an exercise price of $3.16 per share expiring on June 1, 2004.

(3) According to a Schedule 13D (amended), dated February 13, 2003, filed by Clayton A. Mathile, Mr. Mathile is the beneficial owner of 1,981,998 shares of which he has sole voting and dispositive power over 1,705,276 shares and shared voting and dispositive power over 276,722 shares.

(4) Includes 120,000 options at an exercise price of $11. According to a Schedule 13G, dated April 7, 2003, filed by Mitchell E. Jones, Mr. Jones is the beneficial owner of 1,816,281 shares of which he has sole voting and dispositive power over 1,539,559 shares and shared voting and dispositive power over 276,722 shares.

(5) Includes 42,619 shares held by Mr. Shimon Klier, one of our directors, 217,300 shares held by Mr. Zvika Klier, one of our officers who is Mr. Shimon Klier’s son and 700,000 shares held by relatives of Mr. Shimon Klier. Also includes options to purchase 610,000 ordinary shares at exercise prices ranging from $0.9 to $8.771 per share.

At the Shareholders Meeting, our shareholders will be asked to vote on the following proposal:

PROPOSAL NO.1

TO APPOINT ONE OUTSIDE DIRECTOR TO THE BOARD OF
DIRECTORS OF THE COMPANY FOR THE THREE YEAR PERIOD
COMMENCING FROM THE DATE OF HER APPOINTMENT

The Israel Companies Law — 1999 requires Israeli companies with shares that have been offered to the public in or outside of Israel to appoint two outside directors. No person may be appointed as an outside director if the person or the person’s relative, partner, employer or any entity under the person’s control, has or had, on or within the two years preceding the date of the person’s appointment to serve as outside director, any affiliation with the company or any entity controlling, controlled by or under common control with the company. The term “affiliation” includes:

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an employment relationship;

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a business or professional relationship maintained on a regular basis;

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control; and

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service as an office holder.

No person may serve as an outside director if the person’s position or other business activities create, or may create, a conflict of interest with the person’s responsibilities as an outside director or may otherwise interfere with the person’s ability to serve as an outside director.

The initial term of an outside director is three years and may be extended for an additional three-year period. Outside directors may be removed only by the same percentage of shareholders as is required for their election, or by a court, and then only if the outside directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. In general, each committee of our board of directors must include at least one outside director and all outside directors must be members of the Company’s audit committee.

Currently, Mr. Amos Sapir is serving as one of our two required outside directors. Mr. Sapir has served as an outside director of our company since June 2001. Since 1997, Mr. Sapir has held several positions. He serves as chairman of Maalot (the Israel Securities Rating Company Ltd.), and as a board member of various private and public companies. In addition, Mr. Sapir acts as an economic and business consultant. From 1980 to 1997, he held several management positions at Clal (Israel) Ltd. including President of Clal Capital Markets. Mr. Sapir has a bachelors of arts degree in economics and international relations from the Hebrew University of Jerusalem, a masters in business administration and a PhD from Columbia University, New York.

The Board of Directors of the Company has nominated Ms. Efrat Bronfeld for election as an outside director to serve for a period of three years and until her respective successor is duly elected and shall qualify. Ms. Bronfeld has advised us that she will serve as an outside director if elected.

The following table provides certain relevant information concerning Ms. Bronfeld, including her principal occupation during the past five years:

Nominee	Age	Principal Occupation	Shares beneficially owned on May 1,	Percent of Class
			2003⁽¹⁾
Efrat Bronfeld	56	Since December 2002, Ms. Bronfeld has been serving as an outside director of the Industrial Development Bank of Israel Ltd. From 1996 until 2002, Ms. Bronfeld served as chief executive officer of Sitahal - Hagal Talia, a subsidiary of Tahal Consulting Engineers Ltd. in charge of the planning, building and operation of a modern landfill in Israel. From 1994-1996, Ms. Bronfeld served as an assistant to the Vice President of business development of Housing and Construction Holding Co. Ltd. Between 1988 and 1993, she served as a chief economist of Koor Industries Ltd. Prior to joining Koor, Ms. Bronfeld served as an executive for Negev Phosphates Ltd. for 8 years. Between 1976 to 1978, she served as an officer in the Israeli Ministry of Finance. Ms. Bronfeld holds a bachelors of arts degree in economics and French and a masters of arts degree in economics, both from the Hebrew University of Jerusalem.	0	0%

(1)	For this purpose, “beneficial ownership” means voting or investment power with respect to, or the right to acquire, ordinary shares, at any time within 60 days of May 1, 2003.

Approval of this proposal by the shareholders requires approval by: (i) the majority of votes cast at the Shareholders Meeting, including at least one third of all votes of the non-controlling shareholders who are present in person or by proxy and vote on the proposal, or (ii) the majority of votes cast on the proposal at the Shareholders Meeting, provided that the total votes cast in opposition to the proposal by the non-controlling shareholders does not exceed 1% of all the voting rights in the Company.

Our articles of association specify that, until determined otherwise by a general meeting of the shareholders of the Company, the number of directors will be at least two but not more than eight. Currently, we have eight directors on our board. Assuming the election of the outside director, the shareholders will have determined that the number of directors on our board will be more than eight.

The Board of Directors will present the following resolution at the Meeting:

“RESOLVED, that Ms. Efrat Bronfeld is hereby elected to serve as an outside director of the Company for a three year term and until her respective successor is duly elected and shall qualify.”

Our board of directors recommends a vote FOR approval of the appointment of Ms. Efrat Bronfeld as an outside director.

Shareholders are urged to complete and return their proxies promptly in order to, among other things, insure action by a quorum and to avoid the expense of additional solicitation. If the accompanying proxy is properly executed and returned in time for voting, and a choice is specified, the shares represented thereby will be voted as indicated thereon. If no specification is made, the proxy will be voted in favor of the proposal described in this Proxy Statement.

ADDITIONAL INFORMATION

Foreign Private Issuer. We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as applicable to foreign private issuers. Accordingly, we file reports and other information with the SEC. Shareholders may read and copy any document we file at the SEC’s public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549. Shareholders can call the SEC at 1-800-SEC-0330 for further information on using the public reference room. In addition, similar information concerning us can be inspected and copied at the offices of the National Association of Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850 USA. All documents which we will file on the SEC’s EDGAR system will be available for retrieval on the SEC’s website at www.sec.gov.

As a “foreign private issuer”, we are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations. Also, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act and the rules thereunder, with respect to their purchases and sales of securities. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.

ISA Exemption. We have received from the Securities Authority of the State of Israel an exemption from the reporting obligations as specified in Chapter Six of the Israel Securities Law 5728-1968. We must, however, make available for public review at our offices in Israel a copy of each report that is filed in accordance with applicable U.S. law. These documents are available for inspection at our offices at 3 HaYarden Street, Yavne, Israel.

By Order of the Board of Directors,

Izhak Gross
Chairman of the Board of Directors
Arel Communications and Software Ltd.

Yavne, Israel
June 10, 2003

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