HUNT FOR A MOLE

In the 11 years since former Navy analyst Jonathan Jay Pollard was convicted of selling U.S. military-intelligence documents to Israel, both Jerusalem and Washington have worked hard to heal the wounds from that spy scandal. But apparently both countries are still stealing secrets from each other. Last week the Washington Post revealed that the National Security Agency’s electronic snoopers, which had been listening in on the phone conversation of an Israeli intelligence officer, uncovered tantalizing evidence that Israel may have a mole even better placed than Pollard was: a senior U.S. official code-named “Mega” who may be passing on U.S. diplomatic intelligence.

The White House, which was shaken as much by the fact that the story had leaked as it was over the prospect of another Israeli spy, refused all comment. Israeli Prime Minister Benjamin Netanyahu’s office denounced the report as “totally baseless.” Added Eliahu Ben-Elissar, Israel’s ambassador in Washington: “Certainly after the Pollard affair, we would have been crazy to spy on the U.S.”

But not crazy enough to go cold turkey, say U.S. intelligence officials. The FBI, which is investigating the Mega case, has grumbled privately that Israeli espionage agents routinely prowl California’s Silicon Valley and Boston’s Route 128 corridor for high-tech secrets. “The Israelis were bumping into very nearly every one of our friends and allies doing the same thing,” says a former FBI counterintelligence agent. In a report last year to the Senate Intelligence Committee, the CIA identified Israel as one of six foreign countries with “a government-directed or -orchestrated clandestine effort to collect U.S. economic secrets.” Senior intelligence officials tell TIME that last year U.S. Ambassador Martin Indyk complained privately to the Israeli government about heavy-handed surveillance by Israeli intelligence agents, who had been following American-embassy employees in Tel Aviv and searching the hotel rooms of visiting U.S. officials.

So far the only evidence the FBI has of another mole is the intercepted phone conversation. During the call, the Israeli intelligence officer in Washington and his superior in Tel Aviv are discussing how they can get their hands on a Jan. 16 letter then-Secretary of State Warren Christopher wrote to Palestinian leader Yasser Arafat. The private letter spelled out U.S. guarantees for Israeli troop withdrawals from the West Bank. The Israeli official in Washington suggested going to Mega for a copy of the letter, but his superior rejected the idea. “This is not something we use Mega for,” the Israeli supervisor said, according to the NSA transcript of the call.

Who Mega is, or even if he’s a true spy, remains a mystery. He could be a senior State Department aide in Washington who handled the Christopher letter, say intelligence sources, or a U.S.-embassy employee overseas. Or as Netanyahu aides suggested, the two Israeli officials may have been having an innocent conversation about a friendly U.S. official they went to from time to time for information. Mega may not be a code word for a spy but rather a nickname, which Israelis often use for American officials with whom they work.

But even the hint of another Israeli-spy scandal touches raw nerves in the U.S. and abroad. Jewish organizations accused the Pentagon of anti-Semitism last year after they learned that the Defense Investigative Service had sent a memo to military contractors warning that the Israeli government might might try to recruit Jewish Americans as spies. The Pentagon quickly disavowed the memo. “Somebody is trying to destroy or hurt U.S.-Israeli relations,” Anti-Defamation League director Abraham Foxman said of the Mega report.

Indeed, the leak came at a tindery time for U.S. diplomacy in the Middle East. The Clinton Administration has had testy relations with Netanyahu, whom Washington blames for the gridlock in the Palestinian talks. Israeli officials complained that if their embassy phone calls were tapped, Washington also is guilty of spying.

Meanwhile, allegations of a secret conduit to Israel will only feed a growing Palestinian disenchantment that the U.S. is no longer an honest broker in the negotiations. In exclusive interviews with Time this week, senior Arafat aides called on the White House to dump U.S. envoy Dennis Ross for siding too much with Israel. “Palestinian officials…don’t trust him,” says Arafat spokesman Marwan Kanafani. The Administration is sticking with Ross, who was in the Middle East last week trying to restart the talks. But those negotiations could become even more difficult the more friends learn about their spying on each other.

–With reporting by Scott MacLeod/Jerusalem and Elaine Shannon/Washington