Israeli Prime Minister Benjamin Netanyahu built his political career as a tireless battler of terrorism. His first foray into public life was creating the Jonathan Netanyahu Anti-Terror Institute, named for the older brother killed in the 1976 commando raid that freed 100 Israeli hostages in Uganda. Of the five books Netanyahu has written without co-authors, three have Terrorism in the title.

In light of Netanyahu’s history, the families who lost children in a suicide bombing and a terrorist-shooting rampage say they were surprised at Netanyahu’s government blocking crucial testimony in a U.S. court case aimed at punishing a Chinese bank alleged to have knowingly funneled the funds that paid for the attacks. The situation is all the more upsetting, they say, because they brought the lawsuits at the suggestion of the Israeli government in the first place.

“I’m just hurt and surprised by the sudden turnaround,” says Naftali Moses, whose 16-year-old son was killed in a mass shooting at a Jerusalem yeshiva carried out by the Palestinian militant group Hamas in March 2008. “On the surface it seems that there’s some kind of deal that has been cut with China to stifle this court case in exchange for some kind of quid pro quo.”

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That’s the interpretation driving the controversy in Israel. The Bank of China is controlled by the Chinese government, whom Netanyahu has often said Israel should cultivate a relationship with. A leading Israeli newspaper, Yedioth Ahronoth, reported that Netanyahu’s decision to withdraw support for the lawsuits coincided with his five-day trip to China in May.

“In the course of the visit, a deal was reached: Israel will refrain from aiding the bereaved families in their suit, and China will not realize its threat to close its doors to the Israeli economy,” Shimon Shiffer and Nahum Barnea wrote in Yedioth, Israel’s best-selling daily. “Israel bowed to the dictates of the Chinese government.”

Netanyahu’s office said it had no comment beyond a statement it issued saying that a “former Israeli government official” was barred from testifying in order to protect national security. “Furthermore, compelling a former government official to testify in a court in matter of this nature outside of Israel infringes upon the sovereign immunity of the State of Israel,” the statement reads. In court papers, Netanyahu’s national-security adviser at the time warned that putting the official on the witness stand “would implicate the methods and activities used by the State of Israel to prevent terrorism.” An attorney for the Bank of China tells TIME the institution has done nothing wrong. And the main lawyer for the families calls the Yedioth report accurate. “It’s a complete collapse to this pressure,” attorney Nitsana Darshan-Leitner says of Netanyahu. “He abandons his legacy of fighting terrorism.”

The case touches nerves from southern China to Capitol Hill. Among the victims named in the lawsuits is Daniel Cantor Wultz, 16, the son of a cousin of Eric Cantor, the House Republican leader and ardent supporter of Israel. (Cantor’s office declined comment on the case.) Wultz, whose family is now represented by a U.S. law firm, was visiting Israel in 2006 when a suicide bomber from the Palestinian militant group Islamic Jihad detonated the bomb he was wearing as he stood on a Tel Aviv sidewalk. Israeli agents investigating Palestinian militant groups had already detected a money trail leading from the Damascus headquarters of Islamic Jihad and Hamas to Guangzhou in southern China. In court papers, the investigators said they found bank accounts controlled by a Palestinian named Said Shurafa, transferring millions of dollars from Syria to the Gaza Strip, where it was used by the groups’ “military” wings. The court papers say Israeli counterterrorism officials traveled to China to share their findings with their counterparts and to ask that the accounts be closed. When the accounts remained open, Israeli officials approached Shurat HaDin–Israel Law Center, a nonprofit organization that uses civil courts to fight terrorism. The center filed suits in both federal and state courts in the U.S. When the bank filed a motion to dismiss, the Israeli government provided an affidavit from an agent detailing wire transactions through the Islamic Jihad and Hamas accounts.

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But Netanyahu’s government began to back away from the case in the weeks before the Beijing trip, according to Yedioth and Darshan-Leitner. At issue was whether the former official referred to by Netanyahu’s office — a man named Uzi Shaya, who is now retired from Israel’s National Security Agency — would be allowed to testify in the case. Shaya, while still working for Israel’s NSA, which reports directly to the Prime Minister, was present in the meetings with Chinese officials, according to court documents, and designated from the start to testify for the government in the case. The question of whether he would be permitted to testify “may be a make-or-break decision in the case,” U.S. District Court Judge Shira Scheindlin said in open court. When the answer from Netanyahu’s office came back with a no, Darshan-Leitner was chagrined that lawyers for the Bank of China knew it first.

“This motion is not made lightly,” Washington lawyers for the Prime Minister’s office wrote in the official motion to quash the subpoena. The filing was supported by an affidavit from then national-security adviser Yaakov Amidror, warning that if he testified, Shaya “would implicate the methods and activities used by the State of Israel to prevent terrorism.”

Lawyers for the families call that concern hollow, noting that Israeli officials weighed the risk of exposure before urging that the lawsuit be filed in the first place. What’s more, they add, in court Shaya would only be asked to confirm the contents of the affidavit filed by another investigator years earlier, against the banks’ motion to dismiss, and widely reported since. “All the information is already revealed,” says Darshan-Leitner. “It’s in the affidavit. It’s in court. It’s all over the media.”

A hearing on the motion was set for Jan. 20 in U.S. District Court in Washington, D.C.

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