The daily Yedioth Ahronoth said that over the past year and a half the Israeli companies had set up a secret training base in northern Iraq as part of a multi-million dollar project with the Kurdish regional government.

It said dozens of Israeli specialists had been sent to teach Kurdish forces "weapons training, self-defence and counter-terror warfare".

Israel's foreign ministry voiced doubt over the report. "As far as I know there are no Israelis whatsoever in Kurdistan," ministry spokesman Mark Regev said. "As there is a formal state of war between Israel and Iraq, it is illegal for Israelis to visit Iraq."

Israel and Iraq have no diplomatic ties, and Iraq is one of a number of Arab countries with which the Jewish state is still officially in a state of war. Israel has peace treaties with only two of its Arab neighbours, Egypt and Jordan.

The newspaper did not cite any sources for its report but showed photographs of men it said were Israelis, their faces concealed, training Kurds in the use of weapons at an unknown location and preparing vehicles at an airport.

Yedioth said Kurdish authorities had kept the project secret fearing attack by al Qaeda militants. It said the teams had entered northern Iraq from Turkey.

The Kurds, who make up 15-20 percent of Iraq's population and live mostly along the borders with Iran and Turkey, have enjoyed broad autonomy since the 1991 Gulf War.