JERUSALEM, DEC. 19 -- A major scandal involving allegations of kickbacks and fraud in the purchase of U.S. weapons has rocked Israel's air force, implicating a number of senior officials as well as several employees of U.S. defense firms, official sources and Israeli press reports said today.

According to the reports, as many as a dozen senior air force and Defense Ministry officials -- including Brig. Gen. Rami Dotan, the air force's Quartermaster Corps commander until his arrest Oct. 28 -- may be charged as a result of a police investigation into the air force's procurement of equipment from U.S. contractors. The equipment, including jet engines for F-16 warplanes, was bought with hundreds of millions of dollars in aid funds given to Israel by the U.S. government.

Police are investigating allegations that millions of dollars were diverted to senior Israeli officers, and that other officials helped cover up the fraud. Israeli state radio reported today that employees of "major American defense industry companies" are "also expected to be implicated in the affair."

In Washington, Pentagon officials declined to discuss the allegations, but an official source said FBI agents are examining information generated in the Israeli criminal investigation to see if U.S. citizens or companies violated American laws in transactions with the Israeli military, staff writer Jim McGee reported.

One American company cited in Israeli press accounts of the allegations is General Electric, which supplied jet engines for Israel's version of the F-16 fighter plane.

Israeli press accounts identified a GE executive, Herbert B. Steindler, as having been the U.S. manager of the company's sales to the Israeli air force and said he was the subject of an internal inquiry by the firm. "I am cooperating fully with GE," Steindler said in a telephone interview, but he declined to answer questions.

"GE has become aware of an investigation by the Israeli government," George Jamison, a company spokesman, said. "GE has initiated its own internal investigation concerning purchase orders placed with companies said to be involved in the Israel investigation. GE has advised the appropriate U.S. government agencies of our internal investigation and is cooperating fully with the U.S. government."

Israeli state television said tonight that one American defense contractor paid a regular "salary" to a senior Israeli air force official, while others paid a percentage of contracts they received in kickbacks, using dummy companies and other devices.

Military officials described the spreading scandal as a major blow to the Israeli air force, which sees itself as the most prestigious branch of Israel's powerful armed forces.

{"Rami Dotan betrayed us all -- the air force, and me personally," Israeli television quoted air force chief Maj. Gen. Avihu Ben-Nun as telling his officers, Reuter reported. Former air force chief and defense minister Ezer Weizman said on television, "Stinking Dotan hurt the air force harder than any enemy has harmed the air force in the 42 years of Israel's existence. He hit morale, which has enormous security value."}

"This is preoccupying the air force more than the Iraqi threat," said one official, who asked not to be named. "They feel they can deal with the menace from Iraq. But this is a stain on the prestige of the air force unlike anything they've ever experienced before."

The military official said that the senior command was determined to expose the scandal in full, partly because of concerns that it might damage support in Washington for U.S. military funding for Israel. "It's all going to come out. This is not going to stop until the last person who had anything to do with this is exposed," the official said. "The U.S. will be able to see where every dollar went."

Underscoring that anxiety, Israeli Defense Minister Moshe Arens today ordered an official inquiry within the Defense Ministry into "how far-reaching this is," according to the Israeli Embassy in Washington, and asked the ministry's controller to "check the whole system of procurement in the air force."

Israel is one of four nations whose U.S. appropriations are earmarked by Congress, and an official source said that while the Pentagon signs off on large disbursements, the Israeli defense mission in New York has a free hand in negotiating with U.S. defense contractors.

"They do a lot of negotiating government-to-company, directly, not through the U.S. government," a congressional source said. "It is not something that is being directly monitored by U.S. officials."

Lt. Cmdr. Ken Satterfield, a Pentagon spokesman, suggested the allegations were an aberration. "It is an internal Israel matter. We see no problem with the systemic use of the funds," he said.

An Israeli government source said the Justice Ministry had contacted the U.S. Justice Department to pass along information about the case. But the source said it was not clear that Israeli authorities had any hard evidence of criminal activity by U.S. defense firms. A Justice Department spokesman declined to comment.

At the center of the investigation is Dotan, 45. He initially denied any wrongdoing, but after weeks of investigation he struck a plea bargain agreement with authorities under which he has begun to detail an elaborate scheme of fraud and implicate other officers, Israeli radio reported.

Following up on Dotan's testimony, authorities Tuesday arrested another officer in the Quartermaster Corps, Col. Yitzhak Sar, on charges of taking bribes and obstructing earlier investigations, official sources said. At least two Israeli civilians are also being held, including a former Defense Ministry lawyer and the head of an Israeli defense contracting firm.

Israeli radio said the scandal "involved kickbacks in the purchase of equipment for Israel's air force and the establishment of fictitious companies to cover payments for purchases that were never actually made." It added that Dotan "is also alleged to be involved in a plot to murder" a former Defense Ministry official in New York, Ofer Pail, who initially exposed the fraud.

Israeli Embassy official Ruth Yaron said in Washington that the investigation began nearly two years ago when Pail sent a detailed letter to the Defense Ministry containing allegations about Dotan.

Upon receiving the letter, the ministry conducted an inquiry, which confirmed some of the charges, then turned the allegations over to the Police Ministry, Yaron said.

That investigation recently gained momentum when probers were tipped to secret bank accounts controlled by Dotan in Canada, according to Israeli state television. That account said Dotan received illicit payments from several U.S. firms and one paid him a secret salary. However, it did not name the firms or provide details.

Israeli authorities have officially released few details of the affair other than the arrest of Dotan and his alleged associates, and official spokesmen today refused to comment on the investigation. However, Haaretz and other newspapers here published extensive accounts of the alleged fraud, and official sources said those reports accurately described the general outline of the case against the air force officers.

According to Haaretz, Dotan is suspected of conspiring with Yoram Ingbir, the civilian defense contractor who was arrested with him. Since 1984, the paper said, Ingbir's firm has received hundreds of millions of dollars in contracts from U.S. firms, including General Electric.

Using the $1.8 billion in military aid annually provided by the United States government, Israel contracted firms including General Electric to supply aircraft engines, Haaretz said. Ingbir's firm was in turn hired by the U.S. companies as a subcontractor to build testing facilities for the engines in Israel.

According to the allegations detailed by Haaretz, Ingbir's contracts were padded with millions of dollars in bogus charges, and the money was diverted to Dotan and other officials through bank accounts in Europe. Haaretz said that according to the allegations, Dotan pressed the Israeli air force to give exclusive supply contracts for engines to certain American firms that used Ingbir as a subcontractor.

Israeli radio said police investigators had visited the United States and Brussels in pursuit of witnesses, suspects and money stashed in bank accounts. It said more arrests of senior personnel were expected. Haaretz and the Jerusalem Post said Dotan's plea bargain arrangement called for him to serve a prison term of 10 years, return diverted money, and disclose the involvement of others in the affair.