Israeli Prime Minister Benjamin Netanyahu is in a political bind after pulling witnesses from a US case accusing the Bank of China of transferring money to Palestinian terror groups.

Mr Netanyahu called Israel’s US envoy Michael Oren back to Israel to discuss the crisis last weekend.

The US and Jewish groups expressed shock at the Israeli decision.

The Chinese government conditioned the visit of Mr Netanyahu to China in May on his preventing the Israeli officials from testifying.

US officials have threatened to subpoena the Israeli agents if they withhold their testimonies. The witnesses were due to back up the allegation that the Chinese bank ignored US and Israeli warnings that the cash was being re-directed to terrorist groups.

“Instead of fighting terror, the Israeli government surrendered to the Bank of China, whom it rightly chose to fight,” said Nitsana Darshan-Leitner, an attorney opposing the bank and representing 22 families who have lost relatives to terror and rocket attacks.

Florida residents Sheryl and Yekutiel Wultz filed the case in a New York in 2008 after their son, Daniel, was killed in a suicide bombing in Tel Aviv in 2006. He was 16.

The Bank of China allegedly funnelled millions of dollars to Hamas and Islamic Jihad, which they in turn used to carry out attacks between 2004 and 2007.