The arrest in Cairo of a student of dual American and Israeli citizenship on charges of spying for Mossad is another sign of the increasingly tense relationship between Israel and Egypt.

Israel has officially denied that Ilan Grapel, a native of Queens in New York, was in any sort of contact with its intelligence agencies.

Mr Grapel, 28, emigrated to Israel in 2003, served in the Paratroopers' Brigade, was wounded in the Second Lebanon War and returned to the United States to complete a law degree.

Foreign Minister Avigdor Lieberman described Mr Grapel on Tuesday as "an innocent and naive man, probably not very responsible, but nothing beyond that". Mr Lieberman said the Egyptian actions were "strange" but added that "they received our clarifications and I hope that this story will end quickly".

Israeli diplomats tried to sound hopeful over Mr Grapel's predicament, saying that the fact that he was an American citizen and had entered Egypt with his American passport meant that, officially, it was a matter for the State Department in Washington. However, one diplomat said: "The timing is particularly bad. It proves that the interim Egyptian government is mainly interested in throwing raw meat to the local media."

'In the past Israel had better communication with Egypt'

The Emory University student had visited Egypt before, studied Arabic and was described by his friends as "immersed in Arabic culture. He was instinctively left-wing, pro-Palestinian while being a Zionist, and the last person in the world who could ever be a spy. He had pictures of himself in IDF uniform on his Facebook page, how does that tie in with being a spy?"

The Grapel family in New York said that their son had travelled to Egypt as part of a three-month programme on refugee rights and that he had visited Tahrir Square in Cairo, the centre of the demonstrations, out of a general interest in the Egyptian affairs.

"It is not as if this kind of thing has not happened before," said a former Israeli ambassador, referring to the seven years that Israeli mechanic Azam Azam spent in an Egyptian prison on spurious espionage charges, "but in the past we had better channels of communication with the Egyptians. Now there is little contact and no-one knows who to talk to."