(Adds Bank of China statement, paragraphs 11-12)
By Jonathan Stempel
NEW YORK, July 21 (Reuters) - Israel persuaded a U.S. judge not to require a key witness to testify in a case where Bank of China Ltd is accused of supporting terrorism by Palestinian militants, including the 2006 death of an American teenager in a suicide bombing.
U.S. District Judge Shira Scheindlin in Manhattan on Monday agreed to quash a subpoena by the south Florida family of Daniel Wultz against former Israeli intelligence officer Uzi Shaya.
Islamic Jihad claimed responsibility for the April 17, 2006 blast at a Tel Aviv restaurant. Wultz, 16, was among 11 people killed, and his father Yekutiel was injured.
The family said Shaya had been part of a task force that in April 2005 asked Bank of China's main regulator to close accounts that were being used to finance terrorist activities by Islamic Jihad and Hamas.
Israel contended that the subpoena violated its sovereign immunity, and could result in disclosures of state secrets that would compromise its ability to protect citizens from terrorism.
In a 26-page decision, Scheindlin said "no evidence suggests that Israel intended to waive Shaya's immunity" with regard to what he did or learned in his official capacity as a government official.
She also said it was too burdensome to force Shaya, an Israeli citizen and resident, to testify in the United States.
The judge said Shaya may still testify voluntarily about matters unrelated to his official job, in a closed courtroom.
Lee Wolosky, a lawyer for the Wultz family, said: "The court provided a clear roadmap for Mr. Shaya's voluntary deposition, and we look forward to proceeding on that basis."
A lawyer for Israel did not immediately respond to requests for comment.
In a statement, Bank of China said it respects the decision, will continue defending itself in court, has internal policies prohibiting the use of its services to support terrorism, and complies with applicable laws.
"While we feel for the victims and their families and abhor terrorism in all forms, Bank of China is in no way responsible or connected to these acts," the bank said.
Israel's initial push to quash the subpoena drew accusations that the country was trying to protect growing trade ties with China.
U.S. courts have previously dismissed a variety of claims by the Wultz family against Bank of China.
Scheindlin said the only remaining claim falls under the federal Antiterrorism Act, based on Bank of China's having allegedly provided material support to a terrorist organization.
The case is Wultz et al v. Bank of China Ltd, U.S. District Court, Southern District of New York, No. 11-01266. (Reporting by Jonathan Stempel in New York; Editing by Lisa Shumaker)
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