Israel has formally apologised for the passports scandal which disrupted diplomatic relations with New Zealand, but has stopped short of admitting a pair of convicted Israelis were Mossad agents.

Contacts between New Zealand and Israel were frozen at "officials" level last year when two Israeli members of a passports ring were caught trying to fraudulently acquire the identity of a man with cerebral palsy.

Prime Minister Helen Clark said yesterday an official inquiry - launched after the arrests of Eli Cara and Uriel Kelman in April last year - had revealed that this was not the first time an Israeli passports factory had obtained New Zealand passports.

"We turned up a very small number that emanated from what we believe to be Israeli intelligence," she said.

"Those passports have been cancelled and it would be futile to attempt to use them."

The Prime Minister's 3pm announcement - planned to deflect attention from National Party leader Don Brash's address to his party's election conference - was not officially confirmed by Israeli Foreign Affairs Minister Silvan Shalom until last night.

But Israeli foreign affairs official Michael Ronen, who carried out the negotiations with New Zealand's Ankara ambassador, Jan Henderson, said Israel had been expecting an announcement "within a few days".

Mr Ronen said Prime Minister Ariel Sharon's Cabinet had notified New Zealand about two months ago that it was prepared to make a formal apology and give an assurance that the incident would not be repeated.

The apology was conveyed in a brief letter by Mr Shalom to his New Zealand counterpart, Phil Goff.

The letter, postdated June 26, said Israel attached great importance to its New Zealand relationship and wanted to enhance it.

"We wish to express our regret for the activities which resulted in the arrest and conviction of two Israeli citizens in New Zealand on criminal charges and apologise for the involvement of Israeli citizens in such activities.

"Israel commits itself to taking steps to prevent a recurrence of similar incidents in the future."

Helen Clark deflected charges that New Zealand had "gone soft" by failing to get an outright admission that Israel was behind the operation.

"When you examine the wording of the apology it would be clear the Israeli Government would not apologise for criminal activities of just any citizens ... There was a reason to apologise for the actions of these two citizens."

She said the Government had elected not to seek an explanation "that could well have been at variance with the facts we uncovered ourselves'.

"We are satisfied that we are on top of what happened."

Asked if Mossad was welcome here, the Prime Minister said she had never used the word Mossad.

"What we have said is that we have very strong reason to believe that these two gentlemen were associated with an Israeli intelligence agency."

Mr Goff said negotiations had been tough.

Two other members of the passport factory ring, New Zealander Tony Resnick, who fled to Israel after the two alleged spies were arrested, and former Israeli diplomat Zev Barkhan, the alleged spy ring leader, are still at large.

Helen Clark confirmed yesterday that an arrest warrant and Interpol alert had been issued in Mr Resnick's case.

Mr Goff said extradition proceedings had not been sought.

Israel will move swiftly to seek accreditation of its Canberra ambassador, Naftali Tamir, to Wellington as full diplomatic relations resume.