In January 2010 a suspected Mossad hit squad assassinated a top Hamas militant in Dubai. It emerged afterwards -- to the fury of Canberra -- that some of the cell were using Australian passports.
Current defence minister Stephen Smith, foreign minister at the time, summoned the Israeli ambassador and warned that the countries' friendly ties were at risk.
The explosive revelations this week surrounding so-called "Prisoner X" who died in a Tel Aviv jail has again raised concern over the Israeli spy agency's use of foreign passports.
The man, identified by media as Australian-Israeli Mossad agent Ben Zygier, committed suicide in December 2010 while in isolation at Ayalon prison in a case Israel went to extreme lengths to cover up.
His arrest in February 2010 came just a week after Dubai police publicly accused Mossad agents of carrying out the Hamas hit, saying they were looking for around a dozen people with Western passports -- four of them Australian.
The speculation is that Zygier was on the verge of revealing details about Mossad's use of Western passports, among other sensitive operational issues.
An unnamed Australian security official familiar with the case told the Sydney Morning Herald on Friday that Zygier "may well have been about to blow the whistle, but he never got the chance".
The newspaper said he was one of at least three dual Australian-Israeli citizens who emigrated to Israel in the past decade whose cases were investigated by Australia's overseas espionage agency ASIS.
It alleged that in each case the men used their Australian passports to travel to Iran, Syria and Lebanon -- countries that do not allow Israelis to enter. Zygier denied he was a spy.
Former Australian intelligence officer Warren Reed said passports from countries such as Australia were particularly useful to Israel.
"It's a clean country, it has a good image like New Zealand. There aren't many countries like that so our nationality and anything connected with it can be very useful in intelligence work," he said.
Reed added that it was not just Israel recruiting people to make use of their passports for espionage activities.
"It's not only Israel doing it, but the Israeli intelligence system possibly depends on this sort of thing more than anyone else," he told Sky News.
"If Ben was going to blow the whistle on something like that, that's a key operational factor and they wouldn't want that to get out.
"One wonders though whether the passport thing is at the centre of this. It may be just one component."
In March 2004, two suspected Mossad agents were arrested in New Zealand and later convicted for fraudulently trying to obtain passports from the country, prompting diplomatic sanctions.
When the Dubai story broke in 2010, former Mossad case officer Victor Ostrovsky was quoted in Australian media as saying the agency regularly faked Australian passports for its agents.
"They need passports because you can't go around with an Israeli passport, not even a forged one, and get away or get involved with people from the Arab world," he said.
"So most of these (Mossad) operations are carried out on what's called false flag, which means you pretend to be of another country which is less belligerent to those countries that you're trying to recruit from."
He said Mossad had a "very, very expensive research department" dedicated to manufacturing the fake documents which simulates different types of paper and ink, although Israel has dismissed his claims.
At the time of the Dubai incident, then foreign minister Smith said: "This is not the first occasion where there has been misuse of an Australian passport by Israeli agencies."
Canberra is reviewing the Zygier case and Smith Friday refused to comment.