Israel is devoting great efforts to breaking down the Arab boycott of Israeli goods, and believes that the boycott is starting to crumble, according to an official Israeli government report.

The focus of the Israeli effort is on Egypt and Morocco. Now that the peace process is making progress on the Palestinian front, Israel is seeking to upgrade commercial relations with Egypt, dominated at present by Egyptian oil exports.

Israel is seeking to negotiate a new trade agreement with Egypt, streamlining the exchange of goods, and has requested financing from the EU for industrial and agricultural co-operation projects between the two countries.

The only other Arab state with which Israel has substantial economic contacts is Morocco. The two sides signed a framework agreement on economic co-operation at the start of 1994, and efforts are being made to put this into practice, for example establishing telephone and banking links.

Israel has been less successful in its approaches to Jordan. However, European officials report that there is considerable discreet activity involving private Jordanian and Israeli business people.