In November the American government blacklisted two Israeli companies (Candiru and NSO Group) because they create cellphone spyware and sell it to allied countries. The spyware is sometimes used in a way that the American government does not approve of. Previous American and other governments with Israeli intelligence sharing agreements understood that selling to governments came with the risk of some governments using that spyware for monitoring their own citizens suspected of illegal behavior according to local laws. In return these governments shared with Israel information about upcoming attacks or other hostile activities against Israel. This practice was extended by Israel to include information about attacks on American forces. The Israelis cited specific recent warnings that had saved the lives of hundreds of Americans, usually military or diplomatic personnel in Syria and Iraq.
The Americans refused to lift the blacklist and Israel responded by halting their warnings of attacks on Americans. The Israelis pointed out that if they went along with the American blacklist, they would lose many valuable sources in the Middle East and that would endanger Israelis as well as Americans. There is no agreement in the American government about the wisdom of this blacklisting because intel agencies and the military have long understood how this works.
Police rely heavily on "confidential informants" (CIs), especially for counterterrorism work. Most large departments have budgets for paying them. The FBI also has a lot of practical experience with CIs, and they are an essential part of that the CIA does.
The Israelis often pay CIs using favorable treatment by the government, in criminal and administrative matters Israel will also use blackmail, and other forms of coercion, to get CIs to work with them. These techniques are common throughout the Middle East. The use of CIs is a common practice in the war on terror.
In many Moslem nations, the leaders are more interested in trading information with the United States. Islamic terrorists are often heroes in nations where there is not much Islamic terrorism, and the local police know the best way to keep the terrorists out is to know who they are, where they are, and where they are planning to go next. There are deals to be made even with nations that are, as far as the rest of the world knows, your enemy. That's why Iran, Sudan and Syria are often a good source of information, if you have something to trade. If you reach the right guy, a briefcase full of hundred-dollar bills will do the trick. All you need to know is who is approachable, and that's where CIs can be vital. Not just in Iraq, but in Afghanistan, Pakistan, Somalia, Sudan, and many other nations.
This hostility towards Israeli spyware began three years ago when a Canadian university released a study of cellphone spyware and claimed it had identified legal (for government agencies) spyware being used in 45 countries to secretly reside on Apple iPhone cellphones and send activity on the cellphone back to those who put the spyware on the phone. This spyware (Pegasus) was made by an Israeli firm (NSO Group) and has been available since 2010. NSO is continually upgrading Pegasus to work on subsequent versions of IOS (the iPhone operating system). Without those regular upgrades the spyware quickly becomes useless.
NSO responded to the university study by pointing out that it only sold to governments and had no control over what happened to Pegasus after a user obtained it and put it to work. Moreover, there are many apps out there like Pegasus which, while not as effective as Pegasus, are often sold to criminal organizations and anyone who can pay. Such spyware has been around since shortly after cellphones first appeared. Israel is often the target of such spyware since many governments and organizations hostile to Israel try to use such spyware against Israel. For that reason, Israel has become the foremost producer of Internet security software as well as spyware. Naturally, the Israelis do not want this security software used against them and one method for doing that is to make spyware detection and prevention software widely available.
The Canadian university researchers who accused NSO of selling Pegasus to governments who use it to spy on local government critics called for restrictions on who could buy Pegasus and use it for activities many Westerners do not approve of. It is a little late for that because spyware and Internet monitoring software is a huge industry and spyware, in general, is considered generic. Many developers are in countries that don’t care if Westerners are offended by how spyware is used. Some countries see such criticism as a form of praise. NSO already sells its spyware openly and is subject to scrutiny by Israeli and other Western intelligence agencies. It’s the spyware that is not created and used (whether sold or not) for spying on cellphone and Internet users that you should be worried about. But complaining about that stuff won’t gain you much recognition for academic Internet security researchers.
The Israelis were forced to choose between the American demands and continuing to receive information that kept Israelis safe. The blacklist hurts the Israeli firms financially and the blacklisted firms responded by adding a clause to the spyware sales contracts in which obliges the customer to not use the spyware anything but investigating serious crimes and preventing terrorist attacks. That will put nations that currently share information they have about terrorist activity in direct conflict with the United States. Americans will also be more at risk in Middle Eastern countries. This does not appear to be a major factor in the decision to blacklist the Israeli firms.