Security sources say Israel and Iran are conducting rival intelligence operations in Eritrea, the poor African state on the Red Sea.

The Israelis fear Eritrea could be a flashpoint if Iranian Revolutionary Guards continue to ship arms to militants in Gaza via the Eritrean port of Assab. Israel is said to have two Eritrean bases, one a “listening post” for signals intelligence, the other a supply base for its German-built submarines.

In Sudan in February, Israeli drones thought to be based in Eritrea attacked an arms convoy bound for Hamas militants in Gaza, and several Revolutionary Guards escorting the convoy were reportedly killed.

Since 1993, when he received medical treatment in Israel, the Eritrean dictator, President Isaias Afewerki, has had a low-key relationship with the country. Butlast year a state visit he made to Tehran thawed relations with Iran, and President Mahmoud Ahmadinejad sang Afewerki’s praises. To Israel’s dismay, he announced closer economic and trade ties with Iran, and military ties followed suit. The Iranians have now established a naval base overlooking the Bab el Mandeb strait, through which 3.3m barrels of oil flow every day.

“Afewerki changed sides,” said Albert Katznelbogen, an Israeli businessman and former friend of the president. “Nothing moves in Eritrea without his say-so; he needs money, so the Iranians went in.”

Benjamin Netanyahu, Israel’s prime minister, describes Iran as “the biggest threat to Israel”, and the two vie for influence in the Middle East and the Horn of Africa.

It emerged last week that Iran funded a terrorist network in Egypt, so Cairo is likely to become a staunch Israeli ally. Israel’s overseas intelligence agency, Mossad, told its Egyptian counterpart an Iranian network was planning to attack US and Israeli tourists and shipping, through Hezbollah in Lebanon. Forty-nine suspects have been arrested.