Officials today confirmed a senior Israeli diplomat in Washington met several times with a Pentagon analyst being investigated by the FBI on suspicion he passed classified information on Iran to Israel.
But Israel's foreign minister - denying allegations of espionage - said such meetings were commonplace and the two governments routinely shared secrets.
"Israel and the United States have intimate ties ... and the information being exchanged is much more classified than any conversation that may have taken place," Silvan Shalom said at a joint news conference with his German counterpart, Joschka Fischer.
US officials have said the FBI investigation is focussing on Lawrence Franklin, an analyst of Iranian affairs, who works in a Pentagon policy office headed by Douglas Feith, the undersecretary for policy.
The Israeli diplomat has been identified as Naor Gilon, head of the political department at Israel's embassy in Washington and a specialist on nuclear weapons proliferation.
Israel has said Iran and its nuclear ambitions pose the greatest threat to the Jewish state.
Mr Shalom did not mention Mr Gilon by name today, but when asked about contacts between Mr Gilon and Mr Franklin did not deny they had taken place.
A statement issued after Israel's weekly cabinet meeting said: "In discussing the Larry Franklin affair, he (Mr Shalom) noted that foreign ministry checks have shown that the entire Israeli embassy acted according to procedures."
The Israeli daily Maariv quoted Mr Gilon as saying he did nothing wrong. "My hands are clean. I have nothing to hide. I acted according to the regulations," he said.
Newsweek magazine reported this week that, more than a year ago, the FBI was monitoring a meeting between an Israeli embassy official and a representative of the American Israel Public Affairs Committee, the main Israeli lobbying group in Washington. At one point, Mr Franklin joined the two, according to Newsweek.
Its report did not identify the Israeli diplomat, but Israeli media said it apparently was Mr Gilon.
Newsweek, citing US intelligence officials, said Mr Franklin on one occasion allegedly tried to hand over a classified US policy document on Iran, but that the Israeli diplomat refused to take it.
Maariv quoted Israeli sources as saying Mr Gilon did not take documents from Franklin, but had frequent meetings with him.
Mr Shalom was evasive today when asked repeatedly how he felt about a senior Israeli diplomat being placed under FBI surveillance, talking instead about the close nature of US-Israeli ties.
Efforts to reach Mr Franklin by telephone have been unsuccessful.
Mr Feith, his boss, has been accused by Democrats of seeking to manipulate intelligence to help make the case for going to war in Iraq. Congressional investigations have found no evidence of that.
Mark Zell, a dual Israeli-American citizen and a former Feith law partner, suggested the leak about the FBI probe was part of an effort to discredit top officials in the US defence department.
"The pattern is that certain elements in the military and intelligence have a difficult time with the Pentagon leadership," said Mr Zell, who is based in Jerusalem.
Israeli cabinet minister Natan Sharansky has said he believes the allegations might stem from an internal conflict between the Pentagon and the CIA.
The New York Times reported in its Monday edition that government officials said Franklin had been co-operating with federal agents for several weeks.
It said he was preparing to lead them to contacts inside the Israeli Government when word of the investigation, first reported by CBS News, was leaked late last week.