Israeli Prime Minister Benjamin Netanyahu and Chinese President Xi Jinping. Photo: Xinhua/Rao Ainmin via Getty Images

Officials from Israel's Foreign Ministry warned in a classified Cabinet meeting last month that if the Israeli government doesn’t create a strong monitoring mechanism on Chinese investments, it could lead to a harsh confrontation with the Trump administration, 2 ministers who attended the meeting tell me.

Why it matters: The Foreign Ministry warning, which came on July 24, led Prime Minister Benjamin Netanyahu to postpone a vote on forming such a mechanism that was apparently too weak. Chinese investments in Israel have become the main source of tension with the Trump administration over the last 2 years.

  • President Trump and other senior U.S. officials have asked Netanyahu several times to take steps to limit Chinese investments.
  • Israeli officials say the Trump administration has started showing signs of nervousness about what it sees as foot-dragging by Netanyahu on the issue.
  • In their last meeting in March, Trump warned Netanyahu that not addressing the issue could harm defense and intelligence cooperation with the U.S., according to White House officials.
  • Those officials tell me Netanyahu told Trump he understands the sensitivities, but wants to find a balanced policy that won’t harm Israel’s relationship with China.

The latest: During a visit in late June from White House national security adviser John Bolton, Netanyahu committed to passing a decision through the Cabinet on monitoring Chinese investments before Israel's Sept. 17 elections.

  • 10 days ago, Netanyahu’s national security adviser Meir Ben Shabbat presented to the Security Cabinet a draft resolution on this issue.
  • The plan was to vote on the resolution at the end of the meeting, but the Foreign Ministry raised deep reservations. They stressed that it was too weak and wouldn't address U.S. concerns.
  • For example, the draft resolution didn’t include monitoring of Chinese investment in Israel's high-tech sector — a major source of concern for the U.S., both for economic and security reasons.

Ministers who attended the meeting tell me the Foreign Ministry recommended that any monitoring mechanism on Chinese investments be tough enough that the U.S. would feel its concerns were taken into consideration.

  • They said the alternative was to risk confrontation with the Trump administration. That warning led to a postponement of the vote.

Israel's Ministry of Finance pushed back, warning that tight regulation on Chinese investments in the tech sector could harm Israeli companies and lead them to take their business abroad.

  • Netanyahu asked his national security adviser to hold another round of interagency consultations, including with Israeli Ambassador to Washington Ron Dermer, the ministers tell me.
  • An amended text could be brought to the Cabinet as soon as Wednesday.

The other side: A White House official told me, "We hope the Israelis will take steps to address our concerns about China — including passing a resolution in the Cabinet on monitoring Chinese investments."

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