It is possible that the UK knew but it is also possible they new nothing. In my opinion it doesn't actually matter either way. All of the major intelligence agencies use other nations passports but the rule is don't get caught doing it. This is what seems to have happened here so therefore the supposed victim in this case mainly Britain has to be seen to be looking unhappy and protesting. This story will end with either nothing more happening or at the very worst a formal diplomatic slap on the wrist.
Bennett, Deri expected to resign from Knesset, remain in cabinet under new 'Norwegian Law’ (Haaretz)
from the article: Britain 'knew Mossad was using fake passports for Dubai hit'