JERUSALEM (Reuters) - Israel and the United States have resumed talks on future defense aid that Prime Minister Benjamin Netanyahu suspended in protest at the Iran nuclear deal, the Israeli ambassador to Washington said on Sunday.

The allies had been looking to agree on a 10-year aid package to extend the current U.S. grants to Israel worth $3 billion annually, which are due to expire in 2017. But Netanyahu froze negotiations ahead of the July deal reached between Iran and world powers, which Israel deems insufficiently stringent.

"With the nuclear deal now moving ahead, Israel is also moving ahead, hoping to forge a common policy with the United states to address the continuing dangers posed by Iran," Ambassador Ron Dermer said in a Facebook post.

"Discussions over a new Memorandum of Understanding between Israel and the United States, which had been on hold for some time, resumed this past week in Washington," he said, using a term for the defense-aid agreement.

Before the suspension, the two sides were close to a new package of grants worth $3.6 billion to $3.7 billion a year, U.S. and Israeli officials have said. They have predicted that the amount could rise further as Israel argues that it needs more aid to off-set a likely windfall for Iran in sanctions relief which might be used to finance anti-Israel guerrillas.

The top U.S. military officer, Marine General Joseph Dunford, arrived in Israel on Saturday for a visit that Dermer said would include defense-aid discussions. He added that Israeli Defense Minister Moshe Yaalon, visiting Washington later this month, would pursue those talks, as would Netanyahu when he meets U.S. President Barack Obama in the White House on Nov. 9.

"Israel hopes that the discussions we are now engaged in will culminate in a long-term agreement that will dramatically upgrade Israel's ability to defend itself by itself against any threat and enable Israel to address the enormous challenges we now face in the region," Dermer said.