His comments on Thursday followed reports that the US is demanding the dismissal of Israeli defence ministry director general Amos Yaron over the controversial deal.
“There are tensions, which are hidden from the public, which have appeared over the last one or two years concerning Israeli weapons sales, particularly to China,” Yuval Steinitz told Israeli radio.
US officials are furious at Israel for taking back a “sensitive weapons system” sold to China in the 1990s for upgrading, Israel’s Channel Two television reported, although it did not identify the weapon.
Washington had permitted Israel to take the system back from China for repair, but had not authorised it to be upgraded, according to the report.
Israel’s ambassador to Washington, Danny Ayalon, denied on Thursday that the United States had sought the dismissal of Yaron, saying “no demand of that nature was made”.
“We must take account of US interests but a demand for the dismissal of a person in charge such as Amos Yaron … would be unacceptable”
“Questions were raised recently, but they are being examined in a good atmosphere,” he said.
Defence Minister Shaul Mofaz also denied the report, while accepting that a dossier on Israeli weapons sales to China was “in the process of clarification”.
The issue has become very sensitive after Israel in July 2000 cancelled a contract to sell to China a Russian Ilyushin-76 plane equipped with its own Phalcon Airborne Warning and Control Systems (AWACS).
In March 2001, Israel agreed to pay China $350 million to compensate for the cancelled sale.
China had forked out a down payment of $200 million on a first plane, valued at $250 million, and had signed a contract which foresaw the purchase of four similar aircraft.
The United States based its demand on concerns that advanced US defence technology contained in Israeli equipment could be used against China’s foe Taiwan.
“We must take account of US interests but a demand for the dismissal of a person in charge such as Amos Yaron … would be unacceptable,” Steinitz said.
A source close to Prime Minister Ariel Sharon told AFP that “the whole thing has been a misunderstanding”.
The row risks adding to an atmosphere of suspicion that has gripped relations with the Pentagon in recent months.
Sharon has previously said that
Sharon was forced in September to insist that Israel was not spying on the United States following allegations that a Pentagon official leaked intelligence to a pro-Israel lobby.
US officials alleged that Pentagon aide Larry Franklin passed secrets to Israel using the American Israeli Public Affairs Committee (AIPAC) as the conduit.
Franklin is an Iran specialist in the office of Undersecretary of Defence for Policy Douglas Feith, the third most senior civilian official at the Pentagon.
Israel pledged not to spy on Washington after the hugely embarrassing arrest of Jonathan Pollard, an intelligence analyst for the US navy, who passed on thousands of secret documents.
Pollard was sentenced to life imprisonment in 1987.
US intelligence agencies said in 1992 that Israel had carried out non-authorised transfers of US technologies to China, particularly regarding the Patriot anti-missile system.
These accusations were denied by Israel.