Israeli Prime Minister Benjamin Netanyahu appears to be reluctant to send a former Israeli intelligence official to New York to testify as a key witness, despite a judge's request that the official appear in court.

Netanyahu is being accused of letting the case unravel rather than risk ruining bilateral trade ties with Beijing. Israeli newspaper said last month that Netanyahu, when prepping for a high-level visit to China in May, had promised not to let any civil servant, past or present, give testimony which might help the prosecution.

Netanyahu's office has declined to comment on the report.

The state-controlled bank, which declined to comment further, denies any wrongdoing and is contesting the case.

Hua Chunying , a spokeswoman for the Ministry of Foreign Affairs in Beijing, said she was not aware of the case. She added, however, that China implemented "a strict oversight ... to prohibit any institution from supporting terrorist activities in any way".

The international intrigue began with the death of 16-year-old Daniel Wultz. The Florida teenager was killed along with 10 others in a suicide attack on a Tel Aviv restaurant in 2006. His father was among the injured in the blast.

The US government says the Islamic Jihad faction, which claimed responsibility for the attack, receives financial support and training from Iran and safe haven from Syria.

In 2008, Wultz's family filed an initial lawsuit in US District Court in Washington, accusing Iran and Syria of sponsoring the terrorist group. Last year the family won a judgment of US$323 million against the two countries. The countries have yet to pay.

Another lawsuit filed by the family accused the Bank of China of allowing money from Syria, Iran and elsewhere to pass through accounts to the Islamic Jihad, in violation of US financing laws.

Victims of overseas terrorist attacks have increasingly sought restitution in US courts. Plaintiffs have filed claims seeking judgments against secretive groups and rogue nations and also against financial institutions that have held or passed assets belonging to terrorist organisations.

In their suit against the bank, the Wultzes say its "conduct was criminal in nature, dangerous to human life, outrageous, intentional, reckless and malicious, and so warrants an award of punitive damages".

The case could have implications for the Bank of China's expansion plans in the US. In 2010, a judge for the US District Court in Washington refused to drop the bank from the litigation.

The case has also riled officials in Israel.

Meir Dagan, the former head of Israel's Mossad spy agency, has said he would defy Netanyahu and testify himself if the original witness, an ex-intelligence official named Uzi Shaya, was muzzled. "If they ask me, if I receive a request from a US court to testify, I would go testify at any time," said Dagan, who led Mossad from 2002 to 2010.

A regular critic of Netanyahu, Dagan has helped to orchestrate Israel's push to strangle militant funding.

"I think that a continued war on terror, and a clear Israeli position on the matter, should be our priority," he says. "Because we, unlike other countries, suffer from terrorism all the time, and apparently we will continue to suffer from it."

Israel was the driving force behind the Wultz case against the Bank of China. The family grew alarmed when Shaya did not give his eagerly awaited deposition. Shaya could not be reached to explain his failure to testify.

"The Israeli government wanted to initiate this case in support of stopping those who help finance terrorism and it provided critical information," said Daniel's father, Yekutiel Wultz, who was wounded in the blast on April 17, 2006.

US authorities issued a subpoena to Shaya when he visited Washington in September, ordering him to make his deposition on November 25.

According to court transcripts, the Bank of China has denied any knowledge of a meeting in 2005 when Israeli officials, including Shaya, allegedly told their Chinese counterparts about suspicious bank transactions.

The case's presiding judge, Shira Scheindlin, who sits in US district court in New York, has written to Israel's Justice Ministry at least three times this year asking if the country planned to let Shaya testify.

In a hearing on July 19 she told lawyers it made sense to her that China would not want Shaya to testify.

"If the decision is no ... that may be a make-or-break decision for this case," she says, according a transcript. "This may be the only person who really has the knowledge as to what transpired at the (2005) meeting."

Israeli officials declined to discuss any aspect of the case, saying they were still considering the matter.

"It is a very delicate issue," says Israeli Deputy Foreign Minister Ze'ev Elkin. "We are dealing with it in our way and I am not sure that it should be part of public discussion."

According to court documents, 22 members of the al-Shurafa family from Gaza had accounts at a Bank of China branch in Guangdong province. Lawyers say that hundreds of thousands of dollars moved through the accounts to help bankroll Islamic Jihad operations.

Since the case surfaced, the Bank of China has shut these accounts and a member of the Shurafa family has been expelled from China. The Shurafa clan owns a string of stores in Gaza and says it had opened legitimate accounts to pay for the import of Chinese goods.

A member of the family, who declined to give his first name but who spoke on behalf of the family, says their only dealing with Islamic Jihad was when they wired them money to pay for a consignment of school bags for a charity.

"We are shocked at what happened. We lost our business line from China ...We are the ones who should claim compensation for huge financial losses we have suffered," he says.

Israel has lobbied countless countries over the years concerning the need to crack down on money laundering. Netanyahu himself has developed a strong rapport with US policymakers, thanks partly to his image as an uncompromising figure in what the US calls its "war on terror".