NEW YORK, NOV. 28 -- A man who claims to be a former Israeli intelligence agent was acquitted today of charges of trying to sell U.S.-made military cargo planes to Iran for release of Western hostages.

A federal jury found Ari Ben Menashe, 39, not guilty of conspiring to violate the Arms Export Control Act, which bans sales of military equipment to certain countries, including Iran.

Businessman Richard St. Francis also was acquitted of conspiracy for his alleged role in the scheme.

They had been accused of arranging a $36 million deal to sell three Israeli-owned C-130E transport planes to Iran in April 1989.

Menashe and St. Francis were charged with planning to circumvent State Department approval required for resale of U.S.-made military goods.

The January indictment said the scheme was revealed by an undercover Customs Service agent posing as an Iranian who wanted to buy the aircraft.

If convicted, Menasche and St. Francis, 50, of Norwalk, Conn., could have been sentenced to five years in prison and fined $250,000.

During the six-week trial before U.S. District Judge Louis L. Stanton, Menashe's attorney, Thomas Dunn, contended his client was a former intelligence operative who represented Israeli Prime Minister Yitzhak Shamir in an attempted arms-for-hostages deal in 1988.

The deal, which was to include the release of four U.S. hostages in the Middle East, fell through when Shamir insisted that three Israeli soldiers also be freed, Dunn said.

Prosecutors disputed his allegations of government-sanctioned arms deals with Iran. Assistant U.S. Attorney Baruch Weiss said Menashe was merely a translator for Israeli military intelligence from 1977 to 1987.

After the verdict, Dunn told reporters that Menashe claimed Israel brokered several arms deals with Iran between 1980 and 1988 that were covertly approved by the U.S. government. Among those deals was the transaction that became known as the Iran-contra scandal, the attorney said.