Despite the budget, that is clearly one thing where Israel has fallen behind its adversaries.

Conspiracies are always possible, but also keep in mind that parking a ship in the middle of a war zone is always a bad idea. In modern conflicts, significant casualities come from friendly fire incidents. If armies cant even consistently not accidentally target their own troops, it seems entirely plausible they accidentally hit a neutral ship hanging out in the middle of a war zone.

I think the biggest issue with this conspiracy theory is why Israel would want to take out the liberty? It seems like the events would be strongly detrimental to Israeli interests. Nobody has really come up with a compelling motive, which suggests to me the most likely scenario is accident/miscommunication.

But everyone has such budgets, so you could easily argue there's an attempt to revise history in both directions. And I can assure you the sum of the Chinese, Russian, Iranian and gulf budgets far surpass that of Israel's.