Benjamin Netanyahu faces a domestic political scandal with possible international repercussions after news emerged his government withdrew a witness in a US lawsuit brought on behalf of terrorism victims after facing pressure from China.

Yesterday, an Israeli government official and a lawyer representing the victims confirmed a newspaper report this weekend that the Chinese government threatened to cancel a visit by the Israeli prime minister to China in May if he allowed a former intelligence official to give evidence against the Bank of China in a New York court.

Mr Netanyahu called Michael Oren, his US ambassador, back to Jerusalem for a meeting on Sunday after Yedioth Ahronoth, an Israeli newspaper, broke the story, which will be embarrassing for a politician who has made the fight against Islamist terror groups a hallmark of his three terms in office.