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President Moshe Katsav had great expectations for his upcoming state visit this week to Australia - the first visit Down Under by an Israeli president since 1986. He hopes to advance political, economic and security connections between the two countries, which have been steadily improving in recent years. Dozens of Israeli business executives are traveling with the president, hoping to leverage his visit into closer commercial ties.

But the president and his aides already know that his visit is shadowed by the strange, mysterious affair of young Israeli diplomat Amir Laty. The president's advisers have prepared him to deal with the questions that will undoubtedly be raised by the Australian press concerning the Laty affair. The story of the young diplomat, who was thrown out of Australia a few weeks ago, sparked little interest in the Israeli press, but the Australian media have not let go of the story, particularly its juicier details.

In the 56-year-old history of the state's relations with other countries, Israel has only known a handful of cases in which one of its envoys was declared persona non grata and asked to leave a country. Most of those took place in the Eastern bloc in the days of the Cold War, and only once, in 1987, were Israeli diplomats expelled from a Western country: Great Britain. But those "diplomats" were actually Mossad espionage operatives in London, who were running a Druze agent inside a PLO cell in Britain. Acting on direct instructions from Yasser Arafat, the PLO cell assassinated Palestinian cartoonist Ali al-Adhami, known for his biting mockeries of Arafat. The British security service, MI5, was angry that the Mossad did not share its information about the assassins' identities or their weapons.

Laty is not a Mossad agent. His entire professional career is as a junior officer of the Foreign Ministry. After his military service he studied business administration and Asian studies at the Hebrew University of Jerusalem, and then went to China to improve his Chinese. During his studies there, he befriended a young Australian woman named Caitlin Ruddock.

Upon his return to Israel, seven years ago, he joined the foreign service and to improve his chances for advancement, he chose the administrative track over the more prestigious diplomatic track, providing consular services to traveling Israelis, paying embassy bills and taking care of other administrative functions. Since then, he has been posted abroad for short periods of time and last year, he was posted to Canberra for his first long-term overseas posting. Once there, Laty, a bachelor, resumed his relationship with Ruddock, whose father had subsequently become the Australian attorney general. Peter Ruddock was also in charge of the Australian intelligence service.

It is no minor matter when a friendly country orders a diplomat from a foreign country to leave. Israel and Australia have a history of close ties in many areas, including security and intelligence affairs. Elite Australian units, together with British and American units, hunted for Scud missiles in western Iraq; the Mossad and Australian intelligence, which regards itself as part of the campaign against international Islamic terror, meet and exchange information, and such meetings have increased in frequency since 9/11.

But for exactly that reason, Australian intelligence felt betrayed when New Zealand police arrested two Mossad agents last year. One of them, Elisha Cara, operated secretly out of Australia, without the knowledge of the Australian service, with his cover story being that he was a travel agent from Sydney. Mossad explanations that Cara and his associate were not acting against the interests of Australia or New Zealand fell on deaf ears.

The Cara affair became the key to understanding the Laty affair. The humiliated Australian intelligence services were keen to find an opportunity to retaliate. It began suspecting practically every Israeli as if he or she were Mossad agents and Laty became a perfect target for the suspicions. He dated young women - and some had connections or access to secrets. These women, as required, reported to the Australian security services about their ties to the Israeli diplomat. Australian intelligence decided that Laty was a spy and ordered him to leave the country at once.

The case was so unusual that even Laty's bosses at the Foreign Ministry began to think there was no smoke without fire. According to sources in the ministry, they suspected that the reasons for the expulsion were related to sexual harassment or some other offense committed by Laty. He vigorously denied this, saying there was nothing in the relationships that went beyond the permissible, that he was not spying and did not break any Australian laws. A lie-detector test affirmed his claims. Even his contacts with Cara, while Cara was in New Zealand prison after his conviction, consisted only of the customary consular services provided to any Israeli in trouble overseas.

A cross-check with the Mossad confirmed that Laty did not work for it without his Foreign Ministry bosses' awareness.

So what really happened? Why did Australia throw the young diplomat out of the country? The Foreign Ministry would like to know. But its repeated efforts to get an explanation from the Australian government have yielded nothing. And in the ministry, the growing conclusion is that it really was a case of a tragedy of errors on the part of Australian intelligence establishment - which is now ashamed to admit as much.