Ariel Sharon, the Israeli Prime Minister, yesterday vetoed a multimillion pound deal for British Gas to supply Israel with natural gas from a field off the Gaza coast.
British Gas is developing the field on behalf of the Palestinian Authority, which would receive 40 per cent of the profits. It offered to lay a pipeline directly to Israel's Mediterranean port of Ashkelon. The gas would then be piped to Israeli power stations, which have started to go over to natural gas for generating electricity.
Mr Sharon is reported to have preferred to buy gas from Egypt, which has been selling Israel oil for nearly three decades. According to like-minded politicians, the Prime Minister was reluctant to put money into the Palestinian treasury without knowing what it would be used for.
The ceasefire is very fragile and the Palestinians are still building up an arsenal of weapons, which they say could be used against Israelis. Mr Sharon is also said to be wary of exposing the Israeli economy to possible threats to cut off supplies for political reasons.
Tony Blair lobbied for the deal, which had the enthusiastic support of Mr Sharon's National Infrastructure Minister, Yosef Paritsky.
The Finance Ministry advocated buying gas from both the Palestinian field and Egypt in order to create competition in the market.
Cairo, meanwhile, is in no hurry to seal a contract until it sees how the Israeli-Palestinian peace negotiations develop. Israel could yet be left having to buy gas at a higher price from more remote suppliers.
British Gas officials in Israel were unavailable for comment.