The controversial allegation appeared in an interview published in the Israeli daily Yediot Aharonot on Friday. The newspaper said it was not able to verify the reports, which come at a sensitive time in negotiations for a prisoner exchange between Israel and the Tehran-backed Lebanese militia Hizb Allah.
But Iran has consistently denied any connection to the missing israeli navigator.
"There has never been any connection between Arad and Iran and there isn't (one) now either," Foreign Ministry spokesman Hamid-Reza Assefi said last Sunday.
The newspaper's sources are two intelligence officers and a diplomat who fled Iran in recent years.
“He was very thin, weighing about 60kg. He was in a wheelchair. He had quite a thin beard. His face was wrinkled, he was staring into space and had a sad look,” said one of them, who reportedly saw Arad three years ago.
“One source said that when Ron Arad was imprisoned in Tehran in 1998, he was hospitalised twice for heart trouble,” the newspaper wrote.
According to the Yediot, Arad tried to escape his captors while still in Lebanon. He was then was transferred to Syria in 1994 and later to Iran.
“Before Ron Arad's transfer to Iran, it was decided to operate on his knees in order to paralyse the lower part of his legs, with the purpose of preventing him from having any possibility of attempting to escape”
“Before Ron Arad's transfer to Iran, it was decided to operate on his knees in order to paralyse the lower part of his legs, with the purpose of preventing him from having any possibility of attempting to escape,” the paper alleged.
According to Israeli public radio, Prime Minister Ariel Sharon held a special cabinet meeting on Friday to decide the government's position on the issue.
In October 2000, Hizb Allah captured three Israeli soldiers - whom Israel believes dead - in an occupied Lebanese border area. They also seized businessman Elhanan Tannenbaum, a reserve colonel whom the guerrilla group alleges was a spy.
Israel holds - mainly without charge or prospect of trial - around 20 Lebanese detainees. These include Shia Muslim leaders Abd al-Karim Obaid and Mustafa Dirani, who were captured to be used as a bargaining chip in a prisoner swap with Hizb Allah.