The controversial allegation on Saturday is likely to irritate many in the Arab world, though a US military spokesman in Washington said he had no information to back up the claim.
But Brigadier General Janis Karpinski, who was responsible for military police guarding all Iraqi jails at the time prisoners were abused by US troops there, told the BBC she met the Israeli at a Baghdad interrogation centre.
"He was clearly from the Middle East and he said: 'Well, I do some of the interrogation here and of course I speak Arabic, but I'm not an Arab. I'm from Israel'," she said.
"My initial reaction was to laugh because I thought maybe he was joking, and I realised he was serious," said Karpinski who has been suspended from her command for failings at Abu Ghraib but has not been charged with any wrongdoing.
Israeli involvement in Iraq could anger Arabs who accuse Washington of favouring the Tel Aviv in its conflict with the Palestinians and in wider disputes with its Arab neighbours.
Israel has denied similar reports in the past of involvement in US-led operations in the Middle East.
Last month, it denied a report in the New Yorker magazine that it was training Kurdish fighters in Iraq.
Photographs of military police abusing prisoners in Abu Ghraib and other reports of abuse have led to hearings in Congress and provoked international outrage.