The State of Israel on Friday moved to quash a subpoena issued to a former Israeli security official to testify as a star witness in a landmark court case filed by families of victims of suicide bombers who accuse the Bank of China of facilitating terrorist funding via accounts in the US.

The case has forced Israeli Prime Minister Benjamin Netanyahu to choose between supporting victims of Palestinian terrorism and risking a diplomatic rift with China, and it seems that decision was made Friday even though the document noted that “the motion was not made lightly.”

“The State of Israel is steadfastly committed to doing everything within its power to bring terrorists and their sponsors to justice, to prevent future terror attacks, and to support victims of terrorism and their families,” the motion filed to American federal court read, adding that ”the subpoena must be quashed because it violates Israel’s sovereign immunity, it seeks sensitive national security information that is protected as foreign state secrets.”

Critics say that after initially encouraging the claims against the bank, Israel faced second thoughts, fearing it could jeopardize valuable trade ties with China if it allows the former official, who is sworn to secrecy, to testify.

“We are deeply concerned and disappointed to learn of the move by the Israeli government to prevent the inclusion of Uzi Shaya’s testimony in the case against the Bank of China,” said Nitsana Darshan-Leitner, an Israeli lawyer involved in the case, in a statement Saturday. ”This motion asserts that Israel will forgive the supporters and perpetrators of acts of terror against Israelis and Jews. This is unacceptable. ”

Darshan-Leitner is representing 22 families of people who were killed in Palestinian suicide bombings.

Darshan-Leitner added that the need for “financial engagement” with China was understandable, “but not at the cost of abandoning these families who have had loved ones murdered by the Palestinian terror groups who we allege moved funds through the Bank of China.”

She further accused Netanyahu of “hiding ulterior motives or interests because everything Shaya is prepared to discuss was already laid out in a previous affidavit and has already been publicly stated.”

The families accuse the government-owned Bank of China, through its US branches, of serving as a key conduit in transfers of money to Hamas and Islamic Jihad, Palestinian groups that have killed hundreds of Israelis.

The family of Daniel Wultz, a 16-year-old American who was killed in a 2006 suicide bombing in Tel Aviv carried out by Islamic Jihad, is pursuing a separate but related case against the bank.

The families are seeking hundreds of millions of dollars in damages in US courts. With claims based in part on US anti-terrorism laws, a verdict against the bank could also potentially affect its ability to do business in the United States.

While these cases are legally separate, they all depend heavily on the testimony of Shaya. The ex-counterterrorism agent has emerged as a key witness in determining how much the Bank of China knew about the financial transfers.

According to court documents, Shaya was part of a delegation of Israeli counterterrorism officials who met with Chinese officials in April 2005, warning them that Hamas and Islamic Jihad were transferring large sums of money to their militants through the Bank of China. At that meeting, the Israelis asked Chinese officials to “take action” to prevent further transfers.

Shaya was scheduled to appear for questioning in New York on November 25.

US District Court Judge Shira Scheindlin, who is hearing the case, said at a July hearing that Israel’s position could be a “make-or-break decision” for the case.

“This may be the only person who really has the knowledge as to what transpired at the meeting,” according to a transcript.

In an August 29 letter to lawyers for the victims, Shaya said he wanted to testify but did not yet have permission to do so.

“In light of my moral and national obligation and my commitment to the war on terror, I am inclined to give a deposition,” he wrote. “However, thus far, the State of Israel has not yet formulated its final position on the matter.”

Netanyahu has fashioned himself as an expert on fighting terrorism for his entire political career. And signs of official Israeli involvement in the case are everywhere.

The claims against the bank include detailed listings of account numbers, dates and precise sums of money that were transferred over several years— information that would almost certainly require professional intelligence work to obtain.

In addition, another former Israeli security official in the prime minister’s office, Shlomo Matalon, submitted a sworn statement in 2009 outlining some of the transfers and attesting that the Israelis had warned Chinese officials about the transactions. Despite such warnings, he said the bank continued to carry out transfers for Islamic Jihad and Hamas.

“The Israeli government asked us through our lawyers to bring this case and provided relevant evidence,” Wultz’s father, Yekutiel, who was wounded in the 2006 bombing, said in a statement.

“We believe it is critically important to stop the flow of money to terrorists to prevent attacks like the one that killed Daniel and are grateful for the support we have received from many people in Israel, the United States and around the world who all want to see commitments honored, justice done and a safer, more peaceful world,” said Wultz, who lives in Florida.

Adding to the high profile of the case, Wultz’s mother, Sheryl, is a cousin of US House Majority Leader Eric Cantor. The Virginian Republican’s office said he is “not involved” in the case.

Darshan-Leitner has said she planned to subpoena Stuart Levey, a former US Treasury official, as a witness who could help the case, especially if Shaya doesn’t testify.

She said she believes Levey, who monitored the financial dealings of terrorist groups, has evidence showing Bank of China accounts were used by Hamas to channel funds to operatives in Gaza. Levey’s current employer, HSBC Holdings PLC, declined comment and would not make him available for an interview.

The Bank of China declined comment. But in Beijing, Chinese Foreign Ministry spokesman Hong Lei said China opposes “all forms of terrorism” and takes a “proactive role in global counterterrorism cooperation.” He said China also takes safeguards “to prevent any financial institutions from supporting terrorist activities.”

China has never labeled Hamas or Islamic Jihad terrorist groups.

Israeli media reports have said Netanyahu began to have misgivings about the case last spring, shortly before leading a trade delegation to China. The Yedioth Ahronoth daily has said the Chinese threatened to cancel the visit if Netanyahu allowed Shaya to testify.

China has a history of using its considerable economic might to voice displeasure with other countries. For three years, Beijing has frozen relations with Norway since a committee appointed by the Norwegian parliament awarded the 2010 Nobel Peace Prize to an imprisoned Chinese dissident. Diplomatic ties have been gutted, meetings canceled and economic ties hamstrung.

Israeli businessman Amos Yudan, one of the members of Netanyahu’s delegation, said he was not privy to any of the political discussions that took place during the trip. But he said China is a major target for Israeli businesses. China is especially interested in Israeli technology in agriculture and medical equipment.

“Generally speaking, Israel today is doing a lot of efforts to try to increase commercial activities,” Yudan said. “I think the visit of the prime minister was important because they laid out basic agreements.”

Last week, Netanyahu hosted Meng Jianzhu, a senior Chinese official, in Jerusalem. His office said the visit “was a sign of the rapidly improving relations” between Israel and China. “The prime minister added that there were very many areas in which the two countries could cooperate and noted that Israel would be very pleased to do so,” it said.