The Federal Bureau of Investigation believes the man passed classified White House policy documents on Iran to Israel and received no money, but acted out of ideological support for the Jewish state, said a top US official who spoke on condition of anonymity.

The probe targets an individual in the office of Undersecretary of Defense for Policy Douglas Feith, the third most senior official at the Pentagon.

"Obviously anytime there's an allegation of this nature it is a serious matter," said White House spokesman Scott McClellan on Saturday. He refused further comment on the matter.

The Pentagon issued a two sentence statement late Friday saying that it "has been cooperating with the Department of Justice on this matter for an extended period of time. It is the (Department of Defense's) understanding that the investigation within the DoD is limited in its scope."

The aide is thought to have passed the information to Israel via at least one person affiliated with the influential lobby group, the American Israel Public Affairs Committee, the official added.

Israeli officials and an AIPAC spokesman vehemently denied the allegations.

The Washington Post on Saturday identified the man as one Larry Franklin, described as a desk officer in the Pentagon's Near East and South Asia Bureau.

Arrests in the case could come as early as next week, the Post reported.

One government official familiar with the investigation told the Post however it is unclear if the case rises to the level of espionage.

The New York Times reported that the FBI inquiry has been under way for at least a year and has been one of the bureau's most sensitive spy cases in years.

Senior Israeli officials quoted by public radio in Jerusalem said Israel had not conducted intelligence gathering activities on US soil for years.

"This case is very bizarre and we don't know what it's about," one Israeli official said.

"We deny these allegations," the Israeli embassy in Washington said in a short written statement. "The United States is Israel's most cherished friend and ally. We have a strong, ongoing, working relationship at all levels and in no way would Israel do anything to impair this relationship."

CBS News, which first reported the investigation late Friday, quoted sources as saying the suspected spy last year turned over a presidential directive on US policy toward Iran while it was "in the draft phase when US policy-makers were still debating the policy".

This put the Israelis, according to one source, "inside the decision-making loop" so they could "try to influence the outcome".

US authorities had requested information about two AIPAC employees implicated in the case, CBS News reported.

AIPAC said it was cooperating fully with the government's investigation, but was confident that it and its employees would be cleared of any wrongdoing.

"Any allegation of criminal conduct by AIPAC or our employees is false and baseless. Neither AIPAC nor any of its employees has violated any laws or rules, nor has AIPAC or its employees ever received information they believed was secret or classified," spokesman Josh Block said in a statement Friday.

Israel pledged not to spy on the United States after the case of Jonathan Pollard, an intelligence analysts for the US Navy, who passed on thousands of secret documents in 18 months before his arrest in November 1985.

Pollard was sentenced to life imprisonment in 1987, but Israel only admitted that he was one of its spies 11 years later. It has since lobbied Washington to grant him a pardon.

All rights reserved. � 2005 Agence France-Presse. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by Agence France-Presse. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of Agence France-Presse.