The FBI is investigating an intercepted conversation that suggested the Israeli government has an intelligence source that can obtain confidential U.S. diplomatic material, U.S. officials said Wednesday.

But they said the investigation, which arose after the United States eavesdropped on a conversation between the Israeli Embassy here and Tel Aviv, has so far been inconclusive.Officials said the inquiry has not yet determined whether the possible intelligence source, referred to in the conversation by what appeared to be a code name, is from another country or the United States. One official suggested that the FBI has identified no suspect in the case.

Israeli officials Wednesday flatly denied allegations that they are engaged in espionage in the United States or that Israel has a mole in the U.S. government handing over documents.

"Israel does not indulge in any kind of illegal action in information gathering in the United States," said David Bar-Illan, the chief spokesman for Prime Minister Benjamin Netanyahu.

The existence of the intercept was first disclosed by a report Wednesday in The Washington Post, which described the intercept of a conversation between an Israeli intelligence officer in Washington and his superior in Tel Aviv.

Quoting "sources with direct knowledge of the inquiry," The Post said the Washington-based Israeli wanted guidance on whether he should go to "Mega" for a copy of a letter written by Warren Christopher, then secretary of state, to Palestinian leader Yasser Arafat.

According to The Post, the Washington-based Israeli said in Hebrew that "the ambassador wants me to go to Mega to get a copy of this letter." The supervisor in Tel Aviv reportedly said: "This is not something we use Mega for."

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A U.S. government official Wednesday confirmed that the FBI is investigating the intercept "and what it means." Among the many possibilities under investigation, officials said, are whether Mega refers to a U.S. citizen or someone from a third country.

One Israeli official acknowledged that in mid-January "a lot of people wanted this letter," which was published two weeks later in the Israeli newspaper Ha'aretz. But this official said that "to jump to the conclusion that there is an American official manipulated by Israel or paid by them is a jump too far."

The official confirmed that Israeli officials often used code names in trans-Atlantic conversations and said: "Maybe that's not the exact code name. Maybe it's not a person, but a code name for an organization or a method."

U.S. officials said they would have no official comment on the report.

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