This is what I found out about the rumor..It's a rumor probally based on this article where Isreal will sell some military gear to China only after "co-operation with the US"
. Isreal has set up a watch dog department to oversee the operation. This story is dated 3 March 2006. So it has nothing to do with the deaths of the Chinese peace keepers.
3 March, 2006
ISRAEL
Israel to sell arms to China again
Trade in military hardware
had been suspended because of pressure from the United States. A special department will monitor exports.
Tel Aviv (AsiaNews) - Israeli companies have been authorised by the nation's Defence Ministry to resume exports of military hardware to China after months of trade blocked under US pressure.
Ministry director Yaakov Toren was quoted as saying some export permits were issued "in co-operation with the United States". The ministry intends to set up a special department responsible for supervising the authorisation needed for companies wishing to export weapons. "Companies will come and see us and we will judge on a case-by-case basis with or without consultation with the United States," he said. "We are two independent countries which respect their relative interests."
Mr Toren also confirmed that the US had asked for stricter controls in order to check that military hardware made up of US components was not exported without the approval of Washington.
Last year, the US initially froze Israeli participation in a programme to develop a new F-35 generation fighter jet, furious over an Israeli sale of sensitive military technology and equipment to China.