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A REPORT that Singapore and Israel are developing surveillance and intelligence-gathering satellites has upset Malaysians and added another issue to a range of matters bedevilling ties between Malaysia and its island neighbour. It could dampen the climate of a planned meeting in Kuala Lumpur next month between Malaysian Prime Minister Mahathir Mohamad and Singapore Senior Minister Lee Kuan Yew, who have never been friends. Mr Lee, Singapore's former prime minister, has had a prickly relationship with Dr Mahathir since they clashed 35 years ago over the political issues that led to Singapore's forced withdrawal from the Federation of Malaysia. He has not visited Kuala Lumpur since he resigned as prime minister in 1990.

Predominantly Muslim Malaysia has seen Singapore's close ties with Israel, which trained and equipped the island republic's armed forces after Britain closed its garrison in 1967, as an affront and a danger. Kuala Lumpur does not recognise Israel and supports the Palestinian cause.

The latest deal between Singapore and Israel was discussed in a letter from Dr Azmi Hassan, of the Malaysian Technology University, in the New Straits Times yesterday under the heading: "Spy satellite new threat to security".

Dr Azmi said that under the arrangement, which was reported in Jane's Defence Weekly, Israel was expected to provide the technology for the satellites and Singapore the funds, amounting to more than US$1 billion . The two countries planned to jointly develop and launch up to five satellites.

He said the capability of Israel's existing Ofeq satellite technology was "certainly good enough for keeping an eye on the neighbours".

Dr Azmi said the deal offered an attractive solution to Singapore's longstanding interest in developing its own space programme.

Analysts said that in view of the satellite issue, it did not seem to be an opportune time for the meeting between the two leaders, which has yet to be officially announced. But Malaysia is keen to see progress on such matters as the sale of water to Singapore, the disposal of railway land held by Kuala Lumpur in the heart of Singapore and the location of border checkpoints.

Mr Lee is believed to want to discuss the growing political power of the fundamentalist opposition Parti Islam Se-Malaysia, and the threat of Islamic extremism, reflected in the recent armed confrontation between a religious cult and Malaysian security forces. As a small, predominantly Chinese nation, Singapore has viewed these developments with increasing concern.

No one is expecting any quick solutions to the various disputes. The press of each country portrays its government as the aggrieved party.

Malaysia's New Straits Times recently accused the Singapore media of "negative reporting" of all things Malaysian.

In the same report, a Malaysian official source described Singapore counterparts as "hard-nosed and inconsiderate".