WASHINGTON (Reuters) - China and Russia have faced repeated U.S. sanctions for their arms sales, but a largely unheralded player in what Washington considers the troubling proliferation game is Israel, one of the closest U.S. allies. The Jewish state, recipient annually of $3 billion in U.S. aid, is second only to Russia as a weapons provider to China, U.S. congressional investigators say. Some experts fear sensitive U.S. technology may show up via Israel in systems sold by China to Iran and North Korea, which President Bush termed "axis of evil" states after the Sept. 11 attacks on the World Trade Center and the Pentagon. "Israel ranks second only to Russia as a weapons system provider to China and as a conduit for sophisticated military technology, followed by France and Germany," according to a recent report by the U.S.-China Security Review Commission, a panel established by Congress to examine security and economic relations between the two countries. "Recent upgrades in target acquisition and fire control, probably provided by Israeli weapons specialists, have enhanced the capabilities of the older guided missile destroyers and frigates" in the Chinese navy's inventory, it said. The commission, which holds hard-line views on China, cited Israel as a supplier to Beijing of radar systems, optical and telecommunications equipment, drones and flight simulators. "Israel has established itself as an important exporter of high-technology niche weapons containing more sophisticated technology than what is provided by Russia," it said. WORRYING RELATIONSHIP "Among the people who are aware of this (Israel-China) trade, there is a consensus that this is not a healthy relationship," commission chairman Richard D'Amato told Reuters. "There is a growing consensus that transfers of these technologies is worrisome given the balance of power in the Taiwan Straits," he said. D'Amato referred to the fact that Israel-China cooperation persists even as Washington has sold increasingly sophisticated weapons to Taiwan as a defense against China. Beijing considers the island a renegade and has pledged to use force, if needed, to achieve eventual reunification. This creates an ironic possibility: In the event of war, China, with weapons supplied or enhanced by Israel that may have been supplied or enhanced by the United States, would face Taiwan, armed with U.S.-made jets and other military hardware. In November 2000, China promised not to assist any country in developing ballistic missiles that could be used to deliver nuclear weapons and to enact strict export-control rules. But Beijing only just now published the export rules and in the interim, the CIA said Chinese firms provided dual-use missile-related items, raw materials, and/or assistance to several countries of proliferation concern, including Iran, North Korea, and Libya. Two senior U.S. officials told Reuters there has been little attention given to China-Israel arms ties since Bush took office. Issues that could draw criticism of Israel are sensitive in America, where pro-Israel interests wield considerable clout. "It is a concern when anybody sells the Chinese advanced systems -- and the Israeli systems are very advanced -- that we might, at one point, find ourselves opposite those systems in the hands of the Chinese," said one senior U.S. official. But, he added, "I'd be more concerned about it if there was more evidence of (recent) activity" between Israel and China. The Washington Times in July said U.S. intelligence identified an Israeli-made anti-radar weapon, the unmanned "Harpy" drone, deployed with Chinese forces opposite Taiwan. A U.S. government source confirmed to Reuters that Israel provided the weapon to China. He called the transfer "astounding" because it is a key weapon that, in China's hands, could impair the effectiveness of U.S. Aegis cruisers. China, a rising economic and military power, has embarked on a major military modernization and some U.S. officials and analysts view Beijing as a serious potential threat. BUT DOUBTS PERSIST Despite the U.S.-China Security Review Commission's concerns, some analysts doubt Israel made any significant recent transfers to China. Two years ago, under U.S. pressure, Israel suspended the sale to Beijing of four $250 million-a-copy advanced early warning Phalcon aircraft, similar to U.S. AWACS planes. The proposed deal alarmed the Pentagon and infuriated some members of Congress, who threatened to cut U.S. military aid to Israel if the lucrative deal went through. U.S. officials and other knowledgeable sources say Israel was stunned at the vehement U.S. reaction and this made Israel even more cautious about future deals with China. The proposed Phalcon deal "involved indigenous Israeli technology and would have provided lots of jobs for our defense industries," an Israeli official told Reuters. But it was canceled "because Israel has an understanding with the United States that we will not act in a way that will endanger U.S. national security interests," he said. "I think Phalcon was a watershed. It showed the level of our commitment" to the United States, said the Israeli official, who spoke on condition of anonymity. Added a senior U.S. official, "Before the Israelis get in another situation where they are crosswise with us, they'll think twice about it -- the last flap still reverberates." But D'Amato disagreed. "We still think they are involved in this in a serious way," including high-tech intelligence exchanges and a sharing of missile technology. Israel began an arms relationship with China in the Cold War with U.S. backing as a means of balancing off the Soviet Union. But the ties have increasingly troubled Washington. Six years ago, U.S. government reports accused Israel of illegally transferring U.S. technology from the largely U.S.-funded Lavi fighter plane program to China. China's new F-10 fighter jet is said to be nearly identical to the Lavi. Analysts said that in addition to reaping profits and lowering defense production costs, Israel believes arms sales to China raises its influence with Beijing and gains it vital intelligence about its enemies, with whom China does business. Copyright © 2002 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

