A prediction: the so-called “Israeli spy” story trumpeted all over the media yesterday is going to turn out to be a massive exaggeration, a diversionary tactic by CBS News to take some of the heat off the Kerry campaign by throwing red meat to the Jew-haters: Israel Denies Spying on American Allies.

JERUSALEM (Reuters) - Israel denied Saturday spying on its main ally, the United States, responding to suspicions a Pentagon analyst passed secret papers to the Jewish state about one of its most bitter enemies, Iran.

U.S. government sources said Friday the FBI was investigating an analyst connected to Defense Secretary Donald Rumsfeld’s office on suspicion he gave classified documents to Israel via the American Israel Public Affairs Committee (AIPAC), the powerful pro-Israel lobby in Washington.

The sources declined to identify the suspect and said no one had been arrested and no charges brought.

In a brief statement, the U.S. Department of Defense (DoD) said it had been cooperating on the matter with the Justice Department for some time and understood the investigation was limited in scope. …

“We deny carrying out any intelligence activity. It is a strange story,” said a senior Israeli government official, who declined to be identified. “Israel, for many years, has not carried out intelligence activity in the United States.”

Yuval Steinitz, chairman of the Israeli parliament’s Foreign Affairs and Defense Committee, said Israel made a “firm decision” 20 years ago, after Pollard’s arrest, not to spy on Washington again.

“I have a lot of confidence in the United States investigation authorities and therefore I am completely confident that at the end of the day it will be confirmed that there is no Israeli involvement in such a case,” he said.

An Israeli Embassy spokesman in the U.S. capital called the allegations “completely false and outrageous.” AIPAC described the suspicions as “baseless and false.”

And right on cue, inveterate Jew-hater Pat Buchanan was having a field day last night, ranting and raving on MSNBC.