The Israeli embassy in Washington issued a denial, saying that "Israel does not conduct any spying activities (against the US), and condemns any attempt to tarnish Israel with false allegations."
A senior diplomatic source in Jerusalem said Israel would send the US a strong message over the report, even going so far as to argue that parts of it were "tainted with a whiff of anti-Semitism."
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The scathing Newsweek report, published earlier Tuesday (also Israel's Independence Day), said that "Jerusalem’s efforts to steal US secrets under the cover of trade missions and joint defense technology contracts have 'crossed red lines'…going far beyond activities by other close allies, such as Germany, France, the UK and Japan."
The report, by Newsweek's Jeff Stein, went on to claim that, "Zionists were dispatching spies to America before there even was an Israel, to gather money and materials for the cause and later the fledgling state."
The report also cited a congressional staffer familiar with a briefing of testimonies by US counterspies to the House Judiciary and Foreign Affairs committees, who described them as “very sobering…alarming…even terrifying,” with another calling it “damaging.”
The report further went on to claim that Israel's main targets were America’s industrial and technical secrets.
“No other country close to the United States continues to cross the line on espionage like the Israelis do,” the report quoted a former congressional staffer as saying.
He further said "there are no other countries taking advantage of our security relationship the way the Israelis are for espionage purposes, it is quite shocking. I mean, it shouldn’t be lost on anyone that after all the hand-wringing over (convicted Israeli spy Jonathan) Pollard, it’s still going on.”
The aide elaborated and claimed that Israel was involved in “industrial espionage – (with) folks coming over here on trade missions or with Israeli companies working in collaboration with American companies, (or) intelligence operatives being run directly by the government, which I assume meant out of the (Israeli) Embassy.”
Former Israeli ambassador to the US Michael Oren also slammed the report, vehemently denying that Israel was still engaged in intelligence-gathering in the US. "Israel hasn't spied on the US since the Pollard incident," he said. "Israel doesn't spy against the US, period."
Oren also dismissed any accusations that the Israeli government played any role in spying by businesses.
"I don't know about industrial espionages, there is spying in the business world, but the Israeli government is not behind it," he said.
The former diplomat also called into question the allegations made in the piece, as well as the reliability of the reporting.
"Regarding the report there were two things that were unclear to me," Oren said. "Are the claims being made against the State of Israel or against Israelis, and who exactly made briefings (the report cites)."
He further claimed that relations between the US and Israel's intelligence services had never been closer "and you can hear that from congress members from both parties.
"Of course there is still apprehension (since the Pollard incident) but it is unfounded."
A senior diplomatic source added that, "since Pollard Israel is very careful. Things are very organized and coordinated with the US."
The source did admit that there had been "disagreement regarding technological exports to China, but that has nothing to do with spying, but rather with exporting."
He further claimed that it seems that someone "is gunning for the visa waiver program… and it is very easy to connect it to some top secret covert intelligence issues – it always works."
To ease the travel of its citizens, Israel is pressing to join 38 other countries in the US Visa Waiver Program – a prestigious club of nations whose citizens don't need a pre-approved visa to visit America.
However, the move has faced considerable roadblocks, with Washington claiming Israel has not been let into the program simply because it has not met the requirements – and has pointed in part to Israel's treatment of Arab-American travelers, drawing sharp denials by Israeli officials of any discrimination.
Two weeks ago, the Washington-based Roll Call quoted a senior House aide as claiming that “the US intelligence community is concerned that adding Israel to the Visa Waiver program would make it easier for Israeli spies to enter the country.”