Israeli officials blame administration leak for report on spying in U.S.

JERUSALEM [MENL] -- Israel appeared stunned by a report that Washington was investigating allegations of a large-scale Israeli intelligence operation in the United States.

Israeli sources said the report was leaked by the Clinton administration as part of a pressure campaign to stop Israeli arms sales to China. The sources said Israeli resistance to the U.S. demand to cancel the contract with Beijing has led to a series of leaks that concern Israeli-U.S. defense relations.

"I agree that this is not coincidental," said Itamar Rabinovich, a former Israeli ambassador to Washington. "There are circles in the intelligence community and defense industry that amid the controversy over the sale of an Israeli spy plane to China feel more free and motivated to either take things from the archives or make up things about Israel."

A White House spokesman said it was not compromised by any reported Israeli intelligence operation. FBI officials acknowledged the investigation but said no evidence was found to support Israeli espionage.

In Jerusalem, Israeli officials were unsure of what to say. "An essential reaction to the report is problematic," Justice Minister Yossi Beilin said.

The report published in the Washington-based Insight magazine asserted that an Israeli intelligence operation monitored communications by the White House and State Department. Insight said the FBI is investigating allegations that the Israelis intercepted telephone and modem communications of U.S. government agencies.

"The worst penetrations are believed to be in the State Department," Insight said. "But others say the supposedly secure telephone systems in the White House, Defense Department and Justice Department may have been compromised as well."

The FBI probe has focused on an unidentified Israeli couple in Washington, the magazine said. The husband works for the telephone company and the wife is a Mossad agent based in the Israeli Embassy in Washington. FBI agents were said to have found a list of the agency's classified telephone numbers, including access to lines used by counterintelligence for wiretapping.

Insight said President Bill Clinton has been briefed of the FBI investigation. The magazine said the Mossad monitored telephone lines from remote sites.

"We're not even sure we know the extent of it," a U.S. intelligence official told Insight. "All I can tell you is that we think we know how it was done. That alone is serious enough, but it's the unknown that has such deep consequences."

The FBI failed to obtain Justice Department approval to seek an indictment of one suspect in the alleged Israeli intelligence operation. Officials said a trial would be politically-explosive as well as reveal the agency's methods.

The New York Times confirmed the FBI investigation. But the newspaper said the FBI ended the investigation after it failed to unearth incriminating evidence.

But Insight said the Israeli operation was facilitated by lax security at the State Department and the White House. On Friday, the State Department disclosed that "at least two, possibly more" laptop computers used by high-ranking diplomats were missing. Another computer that contained top secret information went missing in January.

U.S. Secretary of State Madeleine Albright expressed fury over the security failures. "I don't care how skilled you are as a diplomat, how brilliant you may be at meetings or how creative you are as an administrator, if you are not professional about security, you are a failure," Ms. Albright said last week.

A presidential advisor panel has also criticized CIA security, saying former agency chief John Deutsch stored top-secret material on his computer at home. The panel, the report of which is to be released this week, accused the CIA of bungling the investigation of Deutsch.

U.S. intelligence sources have been concerned of Israeli penetration of the White House. Former White House intern Monica Lewinsky, who had an affair with Clinton, quoted the president as saying on March 29, 1997, that he suspected that a "foreign embassy was tapping his telephones, and he proposed cover stories."