The controversy was heightened by the surprise resignation in December of Meir Shalit, head of the ministry's Defense Export Control Agency, after a joint U.S.-Israel investigation found that a highly sensitive Israeli-produced electronic system licensed for sale to a French firm had been transferred to China.
This violated stringent U.S. rules on what arms and components Israel, which as a strategic ally has greater access to U.S. weapons systems than most client countries, is permitted to sell and to whom.
The Pentagon was reported to be furious. The journal Israel Defense disclosed in December the incident involved a miniaturized cooling device for missiles made by Ricor Cyrogenic & Vacuum Systems of Israel.
The subsystem was subsequently incorporated into a French electro-optical system U.S. intelligence maintains was sold by France to China, whose increasingly advanced military is seen by Washington as a potential threat in the Pacific.
Israeli newspapers said the re-transfer to China was the result of poor monitoring by the Defense Ministry.
In 2000, Washington blocked the sale of the Israeli-produced Phalcon, early-warning aircraft to China, a contract worth about $1 billion, because they contained U.S.-made components and could endanger U.S. forces.
Washington threatened to cut off $2.8 million a year in military aid if Israel did not cancel the deal.
Israel's relations with China, seen at the time as a prospective defense goldmine as it sought to upgrade its vast military forces, plummeted.
But they've since been restored and as Israel struggles with growing isolation from the European Union over the Palestinian issue, it's increasingly looking to markets in China and India.
A top-level Chinese delegation recently visited the Jewish state and an Israeli official observed: "They don't care about the Palestinian issue. They want to talk about three things: Israeli technology, Israeli technology and Israeli technology."
Amid the new rumpus, a Defense Ministry source said the resignation of Shalit, a 40-year ministry veteran and former director of Israel's security delegation in New York, was "an unsolicited gesture aimed at forestalling yet another crisis of confidence with Washington over an unintentional procedural lapse that occurred during his watch."
The affair underlined how U.S.-Israeli defense ties are periodically strained over Israeli military exports.
In August 2005, Maj. Gen. Amos Yaron, a 32-year army veteran, was forced to resign as director-general of the ministry in a confrontation with the United States over the export of Harpy 2 combat unmanned aerial vehicles built by state-owned Israel Aerospace Industries, flagship of Israel's high-tech defense sector.
Washington was outraged to learn in 2004 that IAI had sold China an undetermined number of the drones, designed to take out air-defense radars, in 1994. When Beijing sent some back for upgrading or maintenance, the Pentagon insisted they should not be returned to China.
The ministry's refusal to identify its arms clients, citing national security, has triggered a petition to Israel's high court by attorney Eitay Mack demanding full publication.
The ministry's fighting this. But momentum for full disclosure is growing, particularly following a British government report in July 2013 that revealed Israel sold arms in 2008-12 to Arab and Muslim countries that are ostensibly its adversaries. These included the United Arab Emirates, Algeria, Pakistan and Morocco.
In 2008, Haaretz reported Israeli arms dealers -- including ex-officers who operate as Defense Ministry agents -- had sold military systems to several countries defined by Israeli law as enemy states with the ministry's full approval. These included Iraq, Libya and Yemen.
In July 2013, Israel's state comptroller, Joseph Shapira, reported "fundamental" failures in the supervision and enforcement of regulations for defense exports. The ministry shrugged these off as "insignificant."
"The Defense Ministry objects to any transparency or openness about Israeli arms, despite the serious failures that have recently been revealed in its export control department," observed analyst Aluf Benn, a longtime critic of the ministry's refusal to be transparent.
"The ministry wants to conceal the full list to avoid a public debate over the morality of selling arms to dictatorial regimes, as well as the worrying failures of its export control division."
Iraq seeks thousands of tank rounds