Hezbollah guerrillas were able to hack into Israeli radio communications during last month's battles in south Lebanon, an intelligence breakthrough that helped them thwart Israeli tank assaults, according to Hezbollah and Lebanese officials.

Wow! Key management problem?

According to this comment in a post about this on Defense Tech, it appears you are correct:

I trained Soldiers and Marines on the every facet of the SINCGARS system for 6.5 years, from Korea to California. I guarantee it was a lack procedure. You do the math, minus the freq hopping element, if this radio system is properly deployed, it provides 128 bit encryption! No matter how powerful your computer(s), you do NOT break that on the fly.

Even though I know fairly little about how these systems work, I still have trouble imagining anything that could lead to this happening other than a procedure problem related to key management. The way cryptography works in these situations isn't exactly rocket science.

If not a procedure issue, than Hezbollah was able to get the communication keys from within the IDF somehow...

Hezbollah cracked the code (followup)