Israeli Prime Minister Benjamin Netanyahu, under pressure to act following a wave of protests against the high cost of living, said on Sunday his government would maintain responsible fiscal policies so Israel did not end up like Greece, Spain or Italy.

"Thanks to the responsible management of the economy in Israel we have, until today, not been part of this crisis," Netanyahu told ministers at the outset of a cabinet meeting referring to the troubles in Europe.

"And it is incumbent upon us to continue with this responsible management. That means that we must reject, with an iron fist, populist legislation that comes from the Knesset (parliament)--from the coalition and opposition."

Surging prices of food, housing and other basic goods sparked mass protests nationwide over the summer against the high cost of living -- partly due to strong economic growth near 5 percent in 2011 and this year.

The public outcry led to a committee formed by Netanyahu recommending a series of tax changes and boosting welfare spending and lowering defence costs, although protesters are not satisfied and seek a new social-welfare budget that would cost tens of billions of shekels.

Netanyahu and Bank of Israel Governor Stanley Fischer have warned that the government must maintain fiscal discipline or else face the same problems as some countries in Europe. Israel has not been hurt by the European debt crisis, with its budget deficit expected to meet a target of 3 percent of gross domestic product this year.

In 2012, though, the deficit is also expected at 3 percent of GDP or more -- higher than a 2 percent target -- as the economy slows and leads to lower tax revenue. Israel's debt-to-GDP ratio also looks set to stay around 75 percent.

"We do not have the privilege, we do not have the latitude to endanger our achievements," Netanyahu said.

In addressing defence, in which the finance ministry seeks cuts that are opposed by the defence ministry, Netanyahu said Israel was facing threats stemming from dramatic changes in the regimes in the Middle East after decades of regional stability. That's in addition to the threat of missiles from neighbors.

"A reverse situation has been created here that there is pressure generated by the defence needs, versus the pressure to preserve the economy of Israel during the economic crisis," Netanyahu said.

"We will have to find the appropriate balance between these two things, but certainly there is no place here for going fiscally wild with all kinds of proposals and bills. This requires a very great deal of responsibility, a great deal of discretion."