The government's decision to suspend a series of arms export licences to Israel if hostilities resume in Gaza led to a major row between the coalition parties, the JC understands.
Business Secretary Vince Cable, who holds sole responsibility for issuing arms licences under the legislation, favoured a wholesale ban on all arms to Israel.
Altbough Conservative ministers opposed him, they were powerless under the law to stop Dr Cable exercising his unilateral power.
A series of disagreements took place within the business department and government with efforts made by Conservative ministers to talk Dr Cable out of placing a full ban on arms exports.
On Tuesday evening the Business Secretary announced that the department had concluded its review and found that the vast majority of exports could not be used by the IDF in Gaza.
But Dr Cable also said that 12 licences had been identified which would be suspended "as a precautionary step" if "significant hostilities" resume.
The decision means the government would impose an arms embargo on Israel if Hamas launches rocket attacks, the ceasefire breaks down and Israel takes defensive action.
A spokesman at the Israeli embassy in London said: "Political decisions of this nature do not reflect Hamas' responsibility as a serial violator of past ceasefires, and are unlikely to contribute to the goal of negotiating a sustainable solution to the current conflict."
Stuart Polak, Conservative Friends of Israel director, said: "It is a crazy situation that the Business Secretary has sole power in relation to an important foreign policy tool. This law needs to be amended so this cannot happen again.
Britain's spending on Israeli military equipment far outstrips what the IDF pays for British items. Less than £10 million is spent annually by Israel. But the British Army's drone fleet is reliant on technology partly developed by Israel, with more than £1 billion spent in the past seven years on items to protect British soldiers in Afghanistan.