The official was identified by The Washington Post as Larry Franklin, a regional policy expert. He is the target of a Federal Bureau of Investigation inquiry for allegedly providing Israel with a sensitive draft of a presidential document outlining US policy on Iran.

It was the first US case of suspected espionage involving Israel since Jonathan Pollard, a US Navy intelligence analyst, was jailed for life in 1987 for passing large volumes of classified material to Israeli contacts.

Israeli officials promptly denied that they had resumed spying on their most powerful ally. The accusations were “completely false and outrageous,” said David Siegel, an Israeli embassy spokesman.

He added: “The United States is Israel’s most cherished friend and ally . . . in no way would Israel do anything to impair this relationship”.

Franklin was an Iranian specialist who worked in the Pentagon’s Near East and South Asia bureau. Israel has recently become acutely concerned by reports that Iran is secretly developing nuclear weapons at its Bushehr reactor.

US officials have hinted that Israel may be preparing a military strike on the reactor to end the threat. Iran has threatened to destroy Israel’s Dimona reactor if such an attack were carried out, but, in a rare conciliatory gesture, President Mohammad Khatami said yesterday he was ready to give the world “guarantees that we won’t seek nuclear weapons”.

The American media reported the FBI’s investigation of Franklin had been under way for several months. One official was quoted as saying that information handed over by Franklin was passed to Tel Aviv by the American Israel Public Affairs Committee (AIPAC), a prominent pro-Israeli lobbying group.

Two AIPAC employees are also under investigation but a spokesman yesterday denied any wrongdoing. “Any allegation of criminal conduct . . . is baseless and false,” said Josh Block. “We would not condone or tolerate for a second any violation of US law or interests”.

Other Israeli sources spoke more frankly about “friendly” spying. “They spy here, we spy there, everyone spies on everyone,” one intelligence source said. “The only rule of the game is not to get caught.”

The source added that the US remained the “prime target for overseas intelligence operations for Israel, since most of the relevant Middle East intelligence is gathered in the States”.

Inside knowledge of Washington’s strategy for dealing with Iran would prove invaluable to Israeli planners as they prepare to counter any Iranian threat. “Iran has threatened more than once to destroy the Jewish state,” an Israeli official said.

The affair may prove a serious embarrassment to the Pentagon, which is already suffering the fall-out from a critical report on its handling of the Abu Ghraib prison scandal. After calls last week for the resignation of Donald Rumsfeld, the defence secretary, the spying allegations are likely to fuel demands for a shake-up of the Pentagon’s civilian leadership.

Franklin’s office reported to Douglas Feith, the Pentagon’s third-ranking official behind Rumsfeld and Paul Wolfowitz, his deputy. Both Feith and Wolfowitz are strong supporters of Israel and critics have frequently complained that Pentagon policy-making is controlled by a “Jewish cabal”.

Feith is an influential aide. He oversaw the Pentagon’s Office of Special Plans, now defunct, which was criticised for providing policy-makers with alleged links between Saddam Hussein’s Iraq and Al- Qaeda.

A report in the Washington Times claimed yesterday that the FBI had “unconfirmed” information that Feith also supplied information to Israel in the 1980s. The Pentagon made no comment and no arrests have yet been made in the case.

Relations between Israel and Iran have become increasingly fraught in recent months.

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