The New Yorker said on Sunday that Israeli intelligence and military operatives are training Kurdish commando units and running covert operations inside Kurdish areas of Iran and Syria.
According to journalist Seymour Hersch, Israel took the decision to send its agents to Kurdistan last year to minimise the damage the Iraq war was causing to its strategic position.
Israel feels particularly threatened by Iran, whose position in the region, it allegedly believes, has been strengthened by the US-led invasion of Iraq.
Israel has always opposed a religious state in Iraq which it believes could threaten its security.
Hersch wrote that the Israeli operatives include members of the Mossad, Israel's clandestine foreign-intelligence service, who work undercover as businessmen.
Asked to comment on the accusations, Mark Regev, the spokesman for the Israeli Embassy in Washington, told The New Yorker: "The story is simply untrue and the relevant governments know it's untrue."
Kurdish officials declined to comment, as did a spokesman for the State Department.
Israeli PM Ariel Sharon says Iran
threatens Israel's security
However, Hersch said his information was based on interviews with a senior CIA official and other intelligence sources in the US and the Middle East.
He added the Israeli decision to seek a bigger foothold in Kurdistan has raised tensions with Turkey, which is worried its Kurdish minority will seek independence.
It is thought a declaration of independence would trigger a Turkish response - and possibly a war - and also derail what has been an important alliance for Israel.
Meanwhile, The New Yorker article also alleges that Iraqi interim prime minister Iyad Allawi worked as an agent for Saddam Hussein's Baath party in the 1960s and 1970s, and has links to the killings of Iraqi dissidents across Europe.
"Allawi helped Saddam get to power," an American intelligence officer told Hersch. "He was a very effective operator and a true believer."
"If you're asking me if Allawi has blood on his hands from his days in London, the answer is yes, he does"
former CIA agent
And Vincent Cannistraro, a former CIA officer, told the New Yorker: "If you're asking me if Allawi has blood on his hands from his days in London, the answer is yes, he does.
"He was a paid Mukhabarat (secret service) agent for the Iraqis, and he was involved in dirty stuff."
Allawi's office did not respond to The New Yorker after a request for a comment.