August 27, 2004, 8:11 PM EDT

WASHINGTON -- The FBI is investigating whether an aide to the Pentagon's No. 3 official acted as a spy for Israel, giving the Jewish state classified materials about secret White House deliberations on Iran, two federal law enforcement officials said Friday.

No arrests have been made, said the officials, speaking on condition of anonymity because the investigation is continuing.

The officials refused to identify the Pentagon employee who is under investigation, but said the person works in the office of Douglas J. Feith, the undersecretary of defense for policy at the Pentagon.

Feith is a key aide to Defense Secretary Donald H. Rumsfeld, working on sensitive policy issues, including U.S. policy toward Iraq and Iran.

The investigation centers on whether the employee in Feith's office passed secrets about Bush administration policy toward Iran to the main pro-Israeli lobbying group in Washington, the American Israel Public Affairs Committee, which then allegedly gave them to the Israeli government, one official said.

David Siegel, a spokesman for the Israeli Embassy in Washington, said: "We categorically deny these allegations. They are completely false and outrageous."

AIPAC spokesman Josh Block said that any allegation of criminal conduct by the organization or its employees is "baseless and false." He said the group "would not condone or tolerate for a second any violation of U.S. law or interests."

He added: "We are fully cooperating with the governmental authorities and will continue to do so."

The investigation was first reported Friday evening by CBS News.

President Bush has identified Iran as part of an "axis of evil," along with North Korea and the former Iraqi regime.

Pentagon officials refused to comment, referring all questions to the Justice Department.

Israel is one of the United States' strongest allies. Yet there have been espionage cases between the two countries in the past.

In particular, the case of Jonathan Pollard, a former naval intelligence officer who gave top-secret documents to Israel, has been a point of contention in U.S.-Israeli relations, with the Israeli government repeatedly pressing for his release.

Pollard was caught in Washington in November 1985, and was arrested after unsuccessfully seeking refuge at the Israeli Embassy.

A congressional aide declined to say if the Senate Intelligence Committee had been briefed on the case but said the panel is generally briefed on espionage cases.