Pentagon Raises Israeli Espionage Threat to ‘Critical,’ Top Tier

The Pentagon has quietly raised its counterintelligence threat level on Israel to the highest internal designation, according to multiple US officials cited in fresh reporting. The move reflects rising concern that an ally is collecting on senior US decision-makers as Washington and Jerusalem clash over Iran policy.

What the DIA actually changed

The Defense Intelligence Agency raised the counterintelligence threat level for Israel in recent weeks after growing concerns that Israeli espionage had become more aggressive than usual, lifting America's top Middle East ally to the highest tier. NBC News and The New York Times, citing anonymous current and former US officials, reported the DIA upgraded Israel's counterintelligence threat level from “high” to “critical,” the most serious designation in its internal assessment system.

The assessment includes a seven-page document and a chart, says Israel's ability to conduct human espionage and technical collection is at a “critical level,” and identifies a series of specific incidents that heightened US concerns.

Who is allegedly being watched

The New York Times reported that US Special Envoy Steve Witkoff, the Pentagon's top policy officer Elbridge A. Colby, and senior Defense official Michael P. DiMino IV were among those targeted. Witkoff has been heavily involved in negotiations with Iran, and has led US negotiating teams in talks between Israel and Hamas, as well as between Russia and Ukraine.

The reports also referenced incidents in which US defense personnel working in Israel allegedly discovered software installed on their phones to tap their communications. In 2025, Israel's domestic intelligence agency Shin Bet was found to have tried to plant a similar device in a Secret Service vehicle, the report said.

Why now: the Iran backdrop

The heightened alert comes as President Donald Trump and Israeli Prime Minister Benjamin Netanyahu have clashed over the war with Iran and Israel's military operations in Lebanon, including in a tense phone call this past week. Trump has pursued negotiations aimed at reaching a broader agreement with Iran, while Netanyahu has reportedly advocated a harder military approach, including additional strikes against Iranian targets and continued pressure on Hezbollah in Lebanon.

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The denials

The White House and Israel's embassy in the US both vehemently denied the NBC report, while the Pentagon declined to comment. A spokesperson for the Israeli embassy in Washington called it “completely false” that Israel spies on the US, adding that “Israel does not gather intelligence on American entities, let alone US government officials,” and that intelligence collection efforts are aimed at enemies, not allies.

Despite the reported threat-level increase, US officials told NBC there has been no indication that intelligence-sharing arrangements between the two countries have been curtailed.

The defense policy angle

The reported threat assessment became public as Congress considers a proposal that would expand formal defense technology cooperation between the US and Israel. Section 224 of the House Armed Services Committee chairman's mark for the FY27 NDAA would establish a United States-Israel Defense Technology Cooperation Initiative, calling for expanded cooperation in defense research, development, testing, evaluation, production and sustainment.

That sets up a political tug-of-war: a “critical” spy rating on one hand, deeper joint defense R&D on the other. The outcome could shape which US defense primes get deeper Israeli program exposure.

Options market and stocks to watch

Watch for any flow reaction in US defense names with significant Israeli program ties or joint development work, alongside cybersecurity names that benefit from heightened counterintelligence spending.

• LMT: watch for headline sensitivity tied to US-Israel joint programs and missile defense cooperation.
• RTX: watch for flow around Iron Dome-adjacent and Middle East defense exposure.
• NOC: watch for reaction tied to intel, ISR, and counterintelligence-related budget commentary.
• PLTR: watch for flow on government and allied-intel software demand if counterintelligence budgets expand.
• CRWD: watch for cyber/counterintelligence narrative spillover as phone-tap allegations circulate.

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