By defence correspondent Jonathan Marcus

Israel's proposed sale of an advanced airborne radar system to China had cast a shadow over ties between Israel and its chief strategic partner, the United States.

For the Americans this was a deal too far.

In the Pentagon's view one of its key allies was selling equipment to China that could significantly alter the strategic balance in the Taiwan Straits. With the new capability, it was feared, China would be able to control any air war in the area.

The Israelis insisted that the Americans had known about the deal for a long time and had never raised objections before.

They stressed that the survival of their own hi-tech defence industry required such sales.

Israel's dilemma

Israel's arms sales to China highlighted growing differences on how it should define its national interests.

Israel depends massively on American military aid, a significant proportion of which is spent in Israel to help bolster the country's own defence industries.

But more generally significant changes are taking place in the field of military affairs as information technologies are applied to the battlefield, linked with new sensors and a dramatic increase in firepower.

Israel hopes to reap the benefits of this so-called military revolution.

To do so, it needs two things: help from the Americans on the one hand, and also its own hi-tech defence industry on the other.

Export or die

But Israel's arms manufacturers can only survive by exporting.

There have been periodic concerns in Washington about Israeli technology transfers - especially to China - given the very close relationship between the Israeli arms industry and many of its US counterparts.

The Israeli prime minister was in a difficult position. He had to juggle the need to retain one of its most important customers - thereby helping to safeguard Israel's own arms industry - with the risk of alienating Israel's friends in Washington at a time when the Jewish state badly needs US support.

But after mounting pressure and some blunt warnings from even Israel's supporters on Capitol Hill, Ehud Barak bowed to the inevitable.

Apart from clearing the air between Jerusalem and Washington, Israel's climbdown should help win congressional approval for any Middle East peace deal that might emerge from Camp David.

If the talks are successful there will probably be a strong measure of additional US military aid to Israel, something that Congress might not have supported as long as the Israel-China deal was still on.