Australia's relations with Israel have hit a new low, with the Rudd Government expelling an Israeli diplomat over the fake passports affair.

The Minister for Foreign Affairs, Stephen Smith, told Parliament today that inquiries by Australian intelligence agencies into the use of fake Australian passports in Dubai had concluded the fakes were the work of a state intelligence agency.

Mr Smith said this led to the conclusion there was no doubt Israel was responsible.

"No government can tolerate the abuse of its passports, especially by a foreign government," he said. "This represents a clear affront to the security of our passport system."