* Israeli drones, and their export, are focus of scrutiny
* Minister voices disappointment at claim, but no surprise
* Says may overhaul encryption systems
By Dan Williams
JERUSALEM, Jan 29 (Reuters) - The United States and Britain have monitored secret sorties and communications by Israel's air force in a hacking operation dating back to 1998, according to documents attributed to leaks by former U.S. spy agency contractor Edward Snowden.
Israel voiced disappointment at the disclosures, published on Friday in at least two media outlets and which might further strains ties with Washington after years of feuding over strategies on Iran and the Palestinians.
Israel's best-selling newspaper, Yedioth Ahronoth, said the U.S. National Security Agency, which specialises in electronic surveillance, and its British counterpart GCHQ spied on Israeli air force missions against Gaza, Syria and Iran.
The spy operation, codenamed "Anarchist", was run out of a Cyprus base and targeted other Middle East states too, Yedioth said.
Online publication The Intercept, which lists Snowden confidant Glenn Greenwald among its associates, ran a similar report, with what it said were hacked pictures of armed Israeli drones taken from cameras aboard the aircraft.
Yedioth said German news-magazine Der Spiegel, whose publication day is Saturday, also planned to run an article based on Snowden's leak.
Israel neither confirms nor denies having armed drones, though one of its senior military officers was quoted as acknowledging them in a secret U.S. diplomatic cable from 2010 that was published by Wikileaks.
The U.S. embassy in Israel did not immediately respond to a request for comment on the Snowden allegations.
A British embassy spokeswoman said it did not comment on intelligence matters, and there was no immediate response from the Foreign Office in London.
Israeli Energy Minister Yuval Steinitz, a member of Prime Minister Benjamin Netanyahu's security cabinet, sought to play down the issue but said lessons would be learned.
"I do not think that this is the deepest kingdom of secrets, but it is certainly something that should not happen, which is unpleasant," he told Israel's Army Radio. "We will now have to look and consider changing the encryption, certainly."
With the Netanyahu government and Obama administration at loggerheads over U.S.-led nuclear diplomacy with Iran, there have been a series of high-profile media exposes in recent months alleging mutual espionage between the allies.
Israel insists that it ceased such missions since it ran U.S. Navy analyst Jonathan Pollard as an agent in the 1980s.
Steinitz said Israel was "not surprised" by the hacking described in the latest Snowden leak.
"We know that the Americans spy on the whole world, and also on us, also on their friends," he said. "But still, it is disappointing, inter alia because, going back decades already, we have not spied nor collected intelligence nor hacked encryptions in the United States."
Yedioth said that the revelations could hurt Israeli drone sales to Germany should Berlin worry about the aircraft networks' security. Steinitz brushed off that possibility.
"Every country carries out its own encryption," he said.
Germany said on Jan 12 it would lease Heron TP drones from state-owned Israel Aerospace Industries (IAI). (Writing by Dan Williams; editing by John Stonestreet)
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