The United States Embassy in Wellington claimed the New Zealand Government's reaction to the passport fraud of two suspected Israeli spies was too strong, and linked it with trade to Arab states.
The details have emerged in leaked US diplomatic cables from 2004.
The cables from the then US Ambassador, Charles Swindells, state that the case drew New Zealand's toughest diplomatic retaliation since the 1985 Rainbow Warrior bombing.
Mr Swindells says what he calls the overly strong reaction suggests the Government saw the flap as as an opportunity to bolster its credibility with the Arab community.
But the current Labour leader, Phil Goff, says that the claims are absolute nonsense, and that the diplomatic ban on Israel had nothing to do with trade.
He says it was put in place because a supposedly friendly country breached New Zealand's sovereignty and committed criminal acts.
