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CORRESP
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     CORRESP

Ceragon Networks Ltd.

24 Raoul Wallenberg St.

Tel Aviv, 69719, Israel

Tel: +972-3645-5733

Fax: +972-3-645-5499

August 10, 2005

Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street, N.W.

Washington, D.C. 20549

Mail Stop 3561

Attention:  Mr. Larry Spirgel, Assistant Director

Re:
Ceragon Networks Ltd.

Form 20-F for fiscal year ended 12/31/04

File No. 000-30862

Dear Mr. Spirgel:

This letter is in response to your
comment letter dated July 12, 2005 regarding the above referenced filing. For your
convenience, we have set out the text of the comments from your letter in bold face,
followed by our response.

FORM 20-F FOR FISCAL
YEAR ENDED DECEMBER 31, 2004

Comment 1.

Note 2: Significant
Accounting Policies, page F-8

b. Financial Statements
in U.S. dollars: page F-8

We note your disclosure that
management believes the dollar is the functional currency because it is the primary
currency in the economic environment in which the Company and its subsidiaries operate.
Tell us whether management performed an analysis of the functional currency for each of
your eight subsidiaries separately or for the Company as a whole. If an analysis was
performed for each subsidiary separately, provide us with more detail in your response
letter that supports management’s conclusion that the dollar is the functional
currency for each subsidiary. If the analysis was performed for the Company as a whole,
explain to us why you do not believe it is necessary to analyze the functional currency
for each subsidiary separately.

Mr. Larry Spirgel

Securities and Exchange Commission

August 10, 2005

Page 2

Response:

Accounts maintained by the Company in
currencies other than the dollar are remeasured into U.S. dollars in accordance with
Statement of the Financial Accounting Standard No. 52 “Foreign Currency
Translation” (“SFAS 52).

The Company’s group structure
consists of Ceragon Networks Ltd. (the “Parent”) and eight subsidiaries. Two of
these are inactive, the U.S. subsidiary is integrated within the United States and the
remaining five are direct, integral extensions of the Parent’s operations.

As stated in the Financial
Statements, a majority (approximately 76%) of the revenues of the Parent and its
subsidiaries are generated in dollars. Except for the U.S. subsidiary that generates its
own revenue, the Parent is responsible for generating the revenues of the group. At the
consolidated level, approximately 60% of the expenses are in dollars or are dollar-linked.
Approximately 90% of the deposits of the Company and its subsidiaries are in dollars. In
addition, it should be noted that the overall operations of the Company and its
subsidiaries are managed in dollars, i.e., the annual corporate budget, managerial reports
and analysis and reports to the Board of Directors are all prepared in dollars.

Management’s analysis of the
functional currency of the Company and its six active subsidiaries was performed
separately for the Company and each of the subsidiaries in order to determine if the
functional currency to be used by each subsidiary should be Parent currency or the local
currency in the subsidiary’s domicile, as follows:

The activities of the subsidiaries
outside the United States – France, Hong Kong, India, Mexico and the United Kingdom
(the “non-U.S. subsidiaries”) – are similar in nature and closely tied to
the Parent’s operations. Such subsidiaries act as representative offices of the
Parent and deal with sales promotion. They do not sell products to their customers but
refer those customers to the Parent. The Parent then receives purchase orders from those
customers, sells the Company’s products and issues invoices to the customers. All of
the employees of these subsidiaries are marketing, administrative and technical support
personnel. The activities of the non-U.S. subsidiaries constitute only a small portion of
the Ceragon group’s activities. Of the 260 people employed by the Company and its
subsidiaries as of December 31, 2004, only 29 were employed by the non-U.S. subsidiaries.
As a group, the non-U.S. subsidiaries constitute a minor part of the Company’s
consolidated balances: approximately 8% of the Company $2.5 million in fixed assets, less
than 1% of its shareholders’ equity of $52.2 million and approximately 6% of the
Company’s total assets of $73.1 million.

Mr. Larry Spirgel

Securities and Exchange Commission

August 10, 2005

Page 3

We reviewed the indicators for
determining functional currency set forth in Appendix A to SFAS 52 and found that most of
the relevant indicators point to the Parent’s currency being the functional currency
of the non-U.S. subsidiaries, that resulting from the nature of such subsidiaries’
operations, as described above. Two of the indicators are inapplicable to the non-U.S.
subsidiaries because of the latter’s activities described above. The sales price
indicator is inapplicable because the Parent determines the price list for its products
worldwide and that price list is in dollars. The sales market indicator is inapplicable
because the non-U.S. subsidiaries do not themselves sell the Company’s products.

The non-U.S. subsidiaries’ cash
flow comes from the Parent and is meant to cover expenses plus a small markup, resulting
in the subsidiaries’ activities directly impacting the Parent’s cash flows on a
current basis. The fact that the Parent finances with its cash flow the activities of
these subsidiaries also means that the financing indicator is relevant and points to the
dollar as being the functional currency of the non-U.S. subsidiaries. This financing by
the Parent constitutes the intercompany transactions between the Parent and these
subsidiaries and means that the activities of the subsidiaries are closely tied to, and
extensively interrelated with, those of the Parent. Expenses of the non-U.S. subsidiaries
are in local currencies but they are related primarily to marketing activities and to
maintaining the offices.

Summarizing the analysis of the
functional currency of the non-U.S. subsidiaries, management considers the non-U.S.
subsidiaries to be a direct, integral extension of the Parent’s operations, as
described in paragraph 6 of SFAS 52. In addition, the majority of the applicable
indicators listed in Appendix A to SFAS 52 show that the functional currency of these
subsidiaries is the Parent’s currency. Since the dollar is the functional currency of
the Parent, management considers the dollar to be the functional currency of the non-U.S.
subsidiaries as well.

Our U.S. subsidiary buys products
from the Parent or from third parties. It sells products in its name and, as a result,
issues invoices and collects proceeds. As a company integrated into the business
environment of the U.S., our U.S. subsidiary’s activities are carried out in dollars
(including, among other things, transactions with the Parent). Therefore the functional
currency of the subsidiary is the dollar. This subsidiary is the only one that sells
independently and holds inventory, and therefore it is the most significant of our
subsidiaries.

Two subsidiaries – those in
Brazil and Germany – were inactive during 2004 and therefore no analysis of
functional currency was required for those entities.

Mr. Larry Spirgel

Securities and Exchange Commission

August 10, 2005

Page 4

Comment 2.

k. Revenue recognition:
page F-11

We note your disclosure that you
sell products indirectly through systems integrators, distributors, resellers, and
Original Equipment Manufacturers. For each of these third parties, tell us whether you
recognize revenue at the point of delivery to the third party or at the point of delivery
to the end-user. Reference all pertinent, authoritative, accounting literature in your
response that supports your accounting treatment.

Response:

Revenues from product sales are
recognized in accordance with Staff Accounting Bulletin No. 104 “Revenue
Recognition”. The Company notes that the third party customers (hereinafter referred
to as resellers) mentioned in Note 2(k) are generally well-established companies which are
considered the same as end-users for accounting since there are no material differences in
the terms and arrangements involving direct and indirect customers, other than pricing.
The Company has a standard price list from which a discount is granted to the buyer, and
the level of discount may differ among system integrators, distributors, resellers and end
users due to their different position in the distribution channel. In addition, the credit
terms for these third parties are no different than those provided to direct customers,
and payment by the resellers is not conditional on their receipt of payment from the
end-user. Contractually, the Company does not provide concessions, rights of
return/exchange, price protection or stock rotation to these customers, except for the two
distributors described below. The Company’s practice is consistent with the
contractual provision of the arrangement in that a history of providing such concessions
does not exist.

There are two distributors, with
rights to rotate stock, limited in both time and value of equipment, for which the Company
maintain a provision for product returns in compliance with Statement 48, Revenue
Recognition When Right of Return Exists.

Based on the above, the Company
recognizes revenue at the point of delivery to the third party reseller
(“Sell-in” approach).

Mr. Larry Spirgel

Securities and Exchange Commission

August 10, 2005

Page 5

Comment 3.

Note 8: Commitments and
Contingent Liabilities, page F-20

k. Royalties: page F-20

We note your disclosure “The
Company is obligated to pay royalties to the OCS, amounting to 3%-3.5% of the sales of the
products and other related revenues generated from such projects, equal to 100% of the
grants received.” Please tell us in your response letter the amount of potential
royalties that you have accrued as of 12/31/04 and explain to us your consideration of
SAFS 5 in making this determination. In addition, provide us with the factors that you
considered in determining that it is not probable that you will have to pay royalties
equal to the full amount of the grants received. Further, please tell us how you account
for the interest on the grants received after January 1, 1999.

Response:

The Government of Israel, through the
Office of the Chief Scientist (“OCS”), encourages research and development
projects that result in exporting products. A company may receive grants from the OCS for
up to 50% of approved research and development expenditures for certain projects.
According to the terms of grants, a company is obligated to pay royalties at a rate of
3-3.5% out of future revenues derived from products developed using such grants.

Through December 31, 2004, the
Company received grants from the OCS, funding certain approved research and development
projects. As mentioned above, the obligation to pay these royalties is contingent on
actual sales of the products funded and in absence of such sales there is no obligation to
pay any royalties. This means that if development of a product is unsuccessful or if such
developed product does not generate revenues, the Company is not required to repay the
grants.

The Company accounted for the
research and development grants received in accordance with the SEC’s view as
expressed in its publication “International Reporting and Disclosure Issues In the
Division of Corporation Finance- Appendix A – Country Specific Issues”, dated
October 1, 2003:

“Government
Grants

“The
Office of the Chief Scientist provides grants for research and development efforts.
Under Israeli law, royalties on the revenues derived from products and services
developed using such grants are payable to the Israeli Government.

Mr. Larry Spirgel

Securities and Exchange Commission

August 10, 2005

Page 6

Royalties
payable are capped at a percentage of the grants received on grants received
before 1999. Royalties payable with respect to grants received under programs
approved after January 1, 1999 are subject to interest on the dollar-linked value
of the total grants received at an annual rate of LIBOR applicable to dollar
deposits.

“The
amounts of grants received and recorded into income should be disclosed for each
period presented. The research and development grants are presented in the statement
of operations as an offset to related research and development expenses. If
material, the amount of grants should be presented separately on the face of the
statement, i.e., gross R&D less grants equals net R&D. Royalty expense should be
classified as part of cost of sales, not as marketing expense.

“If
it is probable that the registrant will have to repay any amount of the grants
received, those amounts should be recorded as a liability and not recorded in
income (emphasis added).”

Since when receiving the grants an
uncertainty exists as to the success of the research and development project and
consequently the amount of sales to be derived from the project (i.e. it is not probable
that the Company will have to repay any amount of the grants received), the Company
recognizes the grants received as an offset to research and development expenses, as
prescribed by the guidance of the Division of Corporation Finance.

The aforementioned accounting
treatment is also consistent with the guidance in SFAS 68 “Research and
Development Arrangements”. Although SFAS 68 states that it does not address
reporting of government-sponsored research and development, due to the similarity between
the OCS arrangement and the arrangements addressed in SFAS 68, and due to the absence of
specific comprehensive literature for government-sponsored research and development, the
Company believes it should analogize the accounting treatment in this case to the
guidelines prescribed in SFAS 68.

According to SFAS 68, if the
conditions in the research and development arrangement suggest that it is probable
that the enterprise will repay the funds received regardless of the outcome of the
research and development, there is a presumption that the enterprise has an obligation to
repay the other parties and therefore the funds received should be classified as
liabilities. Since in the case of the OCS arrangements the Company will not repay the
amount of the grants received if there is no successful outcome and furthermore, such
outcome is not probable when the grants are received, the OCS grants are recorded as an
offset to research and development expenses.

Mr. Larry Spirgel

Securities and Exchange Commission

August 10, 2005

Page 7

In the basis for conclusions of SFAS
68, it is specifically stated that the Board concluded that Statement 5 does not address
the primary issue involved in determining whether an enterprise involved in a research and
development arrangement has a liability. Statement 5 deals with contingencies; that is, an
existing condition, situation, or set of circumstances involving uncertainty as to
possible gain or loss that will ultimately be resolved when one or more future events
occur or fail to occur. In contrast, Statement 68 deals with a transaction in which the
issue is whether at the time an enterprise enters into a research and development
arrangement (a) it is committed to repay any of the funds provided by the other parties
regardless of the outcome of the research and development, (b) existing conditions
indicate that it is likely that the enterprise will repay the other parties regardless of
the outcome, or (c) the enterprise is obligated only to perform research and development
work for others. The Board then explains that some people consider the likelihood of
success of the research and development as the key issue in who bears the risk of failure
of those activities. However, even though future benefits from a particular project may be
foreseen,