Counterfeit Egyptian Money, Stamps and Poisoned Wells: When Young Israel Stirred the Water of the Nile

A new book sheds light on some of the most adventurous and dangerous plots planned and carried out by agents to harm Gamal Abdul Nasser’s Egypt in the years leading up to the capture of group of Egyptian Jews working for Israeli intelligence

PLO leader Yasser Arafat, left, and King Hussein of Jordan, right, listen to Egypt's President Gamal Abdel Nasser, center, at the Nile Hilton Hotel, Cairo, Sept. 27, 1970, after they agreed a truce in the war waged by the Jordanian army against Palestinian guerrillas
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In 1954, the Egyptian government captured a network of young Egyptian Jews who had been trained by Israeli intelligence to commit sabotage and spy against their native land.

The failed operation, which came to be known as esek habish (“the rotten business”), or the "Lavon Affair" shook up the Israeli security and political establishments for more than a decade, and sparked developments that led to the resignation of then-Prime Minister David Ben-Gurion.

Information that I reveal in a new book, published after a lengthy legal battle, shows that the operating patterns that led to the scandal were not unique, but rather systematic Israeli intelligence methods used against Egypt during the years before the failed operation – and to some degree afterward. They included poisoning wells, counterfeiting currency and stamps, psychological warfare, political murders and drug sales.

In the first decade after the state was founded in 1948, Israel’s intelligence agencies were small, with limited resources. Their staff was heavily influenced by American and British spy operations during World War II, as well as by books and films about daring maneuvers behind enemy lines – some real, others purely fictional.

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Many of the details still cannot be published due to objections from the military censor, military intelligence chiefs, and gag orders issued by defense ministers and courts, including the Supreme Court. Nevertheless, I managed to open a small window in this wall of silence.

During its first years, Israel operated a number of intelligence organizations. There was the Security Service (which eventually became the Shin Bet), the Israel Defense Forces’ intelligence department (later the Military Intelligence Branch), and the diplomatic department in the Foreign Ministry.

When the Mossad was founded on December 13, 1949, by Reuven Shiloah, special adviser to both Ben-Gurion and Foreign Minister Moshe Sharett, its task at first was to coordinate all the other agencies; it was small, with few capabilities and little authority. There were constant power struggles between the various services, with commanders always seeking to expand their authority. “Grab what you can” was the motto.

Moshe Milner

The idea of undermining Egypt's economy emerged in this environment, a country which was Israel’s biggest enemy at that time, by creating counterfeit Egyptian banknotes. The inspiration came from World War II, when this was done by Nazi Germany and Britain.

The plan was to print counterfeit Egyptian currency and flood Egypt with it, generating inflation and causing its economy to collapse. Various ideas and plans were discussed and raised, but eventually dropped. Another idea that wasn’t undertaken was to forge Egyptian stamps to smear its new president, Gamal Abdul Nasser, and portray him as a megalomaniac leader who wishes to control the Arab world as part of his Pan-Arabism ideology.

The spies in the Foreign Ministry’s diplomatic department also had an active imagination, full of adventurous ideas – some of them crazy and dangerous acts. The department had an operations branch in Europe, code-named Daat, headed by Asher Ben-Natan. Its people worked under the diplomatic cover of the Israeli missions throughout the continent to collect information on Arab states, recruit agents and plant them into targeted countries to conduct sabotage and special operations.

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Hardly an ideal spy

One of these agents was Theodore Gross, who was born in Hungary in 1920. Gross was an opera singer in Italy and Mexico; during World War II he enlisted in the British Army, started working in intelligence and changed his name to Ted Cross. When the War of Independence broke out in 1948, he discovered his Jewish roots, immigrated to Israel and volunteered with the IDF.

His experience in British intelligence and his fluency in English, German, Italian, Spanish and French attracted Ben-Natan’s attention. In a flash, Ted Cross became David Magen. In March 2006, journalist Gil Meltzer published an article in Yedioth Ahronoth about Magen and his life on the edge, and how he didn’t hesitate to traffic in drugs to finance his pleasures. More than anything, Magen was an unreliable person – hardly the ideal spy. Nevertheless, Israeli intelligence wasn’t exactly flooded with professional agents in those days and couldn’t be too choosy.

In Operation Nylon, Magen was tasked with assassinating key people in the Egyptian regime, and he was to be helped by the Jewish underground. Magen came to Egypt in July 1948 and made contact with young members of the Jewish Zionist underground. The five Jews recruited were promised that after the assignment, they would be spirited out of Egypt on forged passports. To the shock of the underground operatives – and their good fortune, and that of the entire Egyptian Jewish community – at zero hour Magen announced that the mission had been aborted and suddenly went back to Israel with no explanation.

Magen was not given sufficient funds to carry out his assignments. So Ben-Natan and his aides searched for new sources of financing and found them in the person of a British army major who became a collaborator. They gave him a jerrican filled with hashish that the IDF had confiscated from smugglers, and Magen sold the drug in Egypt with the Brit’s help. Some years later, during his trial in Israel, it emerged that Magen had also personally sold drugs in Italy while working for Israel.

Ben-Natan’s small-scale operation with Magen in Egypt was the first, but certainly not the last, time that Israeli intelligence sullied its hands with drug deals and the running of drug dealers. Over the years, there were both Israeli and foreign press reports linking Israeli intelligence (and particularly military intelligence’s Unit 504) to drug deals. Indeed, the unit’s veterans say they didn’t hesitate to recruit and run some of the biggest drug dealers in Sinai and Lebanon. Some of the dealers were arrested, along with Israeli officers and did prison time in Israel as a result of smuggling drugs into the country.

Magen continued to fulfill assignments for Israeli intelligence in Italy which included recruiting and running agents. Only in 1952 was it discovered that he was a double agent who had betrayed his operators and was working for Egyptian intelligence.

He was brought back to Israel on false pretenses and arrested. It then emerged that he had fallen in love with Amina Nur a-Din, a young woman who was part of the Egyptian royal family. After their love story became complicated, Magen was forced to flee Egypt. But before doing so, he offered his services to Egyptian intelligence in return for a large sum of money.

Magen was tried for contact with Egyptian intelligence agents. His trial was conducted behind closed doors and under a complete press blackout, and he was sentenced to 15 years’ imprisonment. In 1959 he was granted clemency. After his release, he married and entered the restaurant business, becoming a partner in the Wimpy’s fast-food chain. He died in 1973.

Another possibility considered was to poison Egypt’s wells. This was an acceptable form of sabotage during the pre-state period and Israel’s early years. Holocaust survivors led by Abba Kovner set up in 1945 an underground called “The Avengers”. They planned to murder six million Germans by either poisoning the water system in German cities or poisoning the bread supply lines to the prisoner of war camps. Prof. Ephraim Katzir, later the country’s president, and his brother, chemist Aharon Katzir (who was killed in 1972 in the attack by Japanese terrorists at Lod Airport), both of whom worked for the Weizmann Institute of Science (known then as the Sieff Research Institute) supplied Kovner with poison, but the plan to poison the water system never came to fruition.

In May 1948 David Mizrahi and Ezra Horin, two Israeli agents, were captured near wells in Gaza, dressed as Arabs. The Egyptian authorities accused them of planning to poison the wells because they were carrying canteens with double bottoms which held a liquid contained with bacteria that would cause dysentery and typhus. Mizrahi and Horin were members of the Shahar Department, an undercover unit of the elite Palmach strike force of the Haganah pre-state Jewish militia. Its members were natives of Arab lands or from families of Middle Eastern origin. Mizrahi and Horin were tortured by the Egyptians and on August 22, 1948, after a two-day show trial, they were executed by a firing squad. The later plan to poison Egyptian wells was abandoned.

The Lavon Affair

In 1951, Avraham Dar, an officer in Unit 131 of Military Intelligence, which handles operations beyond enemy lines, recruited a sabotage network of Egyptian Jews. He entered the country disguised as a British businessman named John Darling and recruited idealistic students and members of Zionist youth movements.

Members of the network were sent to Israel to be trained in weapons, communications, surveillance and cryptography, after which they returned to Egypt and were told to wait for instructions. The plan was to activate them only if there was war, so they could blow up bridges, roads and other strategic installations. In August 1951 Dar was asked to be released from operating the network and his request was granted.

He was replaced by Maj. Avri Elad (Avraham Seidenwerg) who took command of the Egyptian sabotage network. Elad assumed the identity of German machine engineer name Paul Frank. In December 1953 he was smuggled into Egypt and renewed ties with the cells that had been set up in Cairo and Alexandria. In the summer of 1954, Elad received the order to activate the network apparently by military intelligence chief Benyamin Gibli (and perhaps even from Defense Minister Pinhas Lavon), contrary to the original plan to activate it only in the event of war. The objective was to attack British and American sites in Cairo and Alexandria and make it look like it was the work of Egyptian nationalists. The hope was to undermine the relationship between Egypt and Western powers and prevent the withdrawal of British forces from the Suez Canal.

In July 1954, members of the network carried out three attacks: on Alexandria’s main post office, the American library in Cairo and the American library in Alexandria. But the plan failed and the attacks led to the arrest of 13 network members. Two of them, Shmuel Azar and Dr. Moshe Marzuk, were executed. The others were sentenced to prison terms ranging from seven years to life. They were released only in 1968 in a prisoner exchange after the Six-Day War. Two of those arrested were exonerated.

Upon his return to Israel, Elad was charged with being a double agent and betraying his network colleagues. But since there was no solid evidence of this, in 1960 he was convicted of other crimes linked to contact with an Egyptian intelligence officer and sentenced to 12 years in prison. In the meantime Dar continued this intelligence work. In 1957, just before Israel was forced to withdraw from Sinai, Dar suggested to bomb two buildings in Cairo to deprive Nasser from "celebrating his victory".

In both Operation Nylon and the Lavon Affair, Israeli intelligence developed plans for adventurous operations in Egypt which used local Jews without proper training or instructions. In the process, Israel endangered the entire Jewish community. After the 1979 peace agreement with Egypt and considering the fact that the country is a strategic asset for Israel, every report of sabotage plans like these raised concerns among Israeli defense officials that it would damage the relations between the two countries.

Nevertheless the peace agreement has survived for more than 40 years much worse incidents such as murdering Egyptian prisoners than the amateurish operations and childhood diseases of the Israeli intelligence in the 50s.

This article is an excerpt from the Hebrew edition of my book “The Imperfect Spies: The History of Israeli Intelligence,” recently published by Tchelet Books.