Although Israel has already expressed its regret over the spat centred around an agreement to upgrade Harpy Killer drones it had sold to Beijing, the Haaretz daily said that Washington wanted Mofaz to sign an official apology.

While the defence ministry has previously said negotiations which would see Israel clear future arms deals with Washington were at advanced stage, Haaretz said the government had baulked at further demands for legislation tightening the monitoring of military exports to be signed within the next 18 months.

Israel's ties with its usually staunch US ally took a major hit from the row over the drones deal, with the Pentagon imposing some restrictions on arms sales and technology transfers to Israel.

The government has been particularly keen to resolve the dispute with Washington at a time when it is looking heavily to support from the Bush administration for the pullout from the Gaza Strip starting in August.

If Israel does eventually sign a memorandum of understanding with the US, it will have to renege on the agreement to upgrade the drones and open the way for a multi-million dollar compensation claim from China for the second time in five years.

Israel had to pay Beijing 350 million dollars in compensation after breaking an agreement in 2000 to supply Falcon airplanes with an AWACS radar system.

The defence ministry would not comment on the reported cancelling of Mofaz's visit but said in a statement that it was "continuing our dialogue with the United States in a concrete and discreet fashion to conclude an agreement as soon as possible."

There was no immediate reaction from the US embassy to the report.