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By Ione Wells & Tom Bateman
BBC political correspondent and Middle East correspondent
The foreign secretary's office warned Downing Street a bill to ban public bodies from boycotting Israel could breach international commitments.
The advice also says the bill could give Russia "ammunition" to accuse the UK of hypocrisy.
The BBC has seen a letter sent to No10 by a senior official in May.
It suggests a significant cabinet split over the planned law, amid an already highly charged atmosphere over its contents.
The advice says if the bill goes ahead as drafted, the foreign secretary believes Moscow "will use it against us".
Communities Secretary Michael Gove, who introduced the bill, told MPs last week he knew of "no such advice" when asked if any diplomatic posts had advised the government the bill could breach Britain's international commitments.
The planned law, known as the anti-BDS bill, is an attempt to limit the reach of the Boycott, Divestment and Sanctions (BDS) movement, which calls for broad-based economic and cultural boycotts of Israel and Israeli settlements in the Occupied Palestinian Territories.
Mr Gove has championed the legislation, saying it would make sure foreign policy remains a UK government matter.
It would stop local councils and other bodies in charge of public funds from boycotting good and services from both Israel and Israeli settlements in the Occupied Palestinian Territories and Golan Heights.
The BDS movement is widely backed by Palestinians and anti-occupation groups in the UK. Israel sees it antisemitic and has supported moves by other governments to outlaw such boycotts by public bodies. The issue is highly controversial, often sparking rows and protest among rival groups supportive of Israel or the Palestinians.
In a sign of deep unease within the Foreign Office over the impact of the bill as drafted, a letter sent from a senior official in Mr Cleverly's office to Downing Street on 12 May warned of damaging consequences for the UK if the legislation went ahead in its current form.
It suggests Moscow would use it to show the UK did not uphold the international rules-based system and was therefore "being hypocritical in our treatment of 'annexed territory'" in relation to Britain's condemnation of Russia's invasion of Ukraine.
Foreign Office lawyers advised a clause in the bill "would significantly increase the risk of the UK being in breach of our commitments under [United Nations Security Council Resolution] 2334."
This appears to contradict Levelling Up Minister Felicity Buchan, who told MPs at the end of the debate on the bill: "The government's view is that the bill is compliant with UN Security Council resolution 2334."
A United Nations Security Council resolution, or UNSCR for short, is a formal commitment made by member states of the UN's Security Council.
The council is currently chaired by the UK, and is responsible for maintaining international peace and security.
The UN Security Council resolution 2334, passed in 2016, sees Israeli settlements in the occupied territories as a "flagrant violation" of international law and a "major obstacle" to peace. It also calls on countries "in their relevant dealings" to distinguish between Israel and the territories it occupies.
The Foreign Office lawyers warned that the bill could breach this commitment because it does not distinguish between boycotts against Israel and those against settlements in the occupied Palestinian territories and Golan Heights.
Officials said such a breach of the resolution "would provide ammunition to Russia in its attempt to undermine our narrative that its invasion of Ukraine is in violation of the UN charter and a number of Security Council resolutions" and that Russia was likely to accuse the UK of being "hypocritical".
The letter adds: "Russia (and to an extent China, with an eye on Taiwan) would likely seize any opportunity to challenge the legitimacy of our voice on responsible multilateralism.
"In this context, the foreign secretary believes that the legislation, as drafted, will create difficult handling issues… and that Moscow will use it against us."
It says while Mr Cleverly noted the BDS Movement is "divisive", the official said he recommended removing the specific references to Israel and the occupied territories from the face of the bill.
It adds that the prime minister decided in December 2023 to include Israeli settlements in the Occupied Palestinian Territories in the bill.
What does the bill say about Israel?
The bill gives the government the power to make certain countries exempt from the restrictions - meaning public bodies would be allowed to introduce their own sanctions, campaigns and boycotts against them.
For example, the government intends Russia and Belarus to be exempted.
Public bodies would also not be barred from complying with UK-wide sanctions.
But the bill specifically singles out Israel, the Occupied Palestinian Territories or the Occupied Golan Heights saying they cannot be made exempt - so public bodies could not boycott them without a further law change.
In doing so it groups the three together, which critics argue undermines the UK's foreign policy position by suggesting boycotting Israeli settlements in the Occupied Palestinian Territories or Golan Heights would be the same as boycotting Israel - despite the illegality of the former two under international law.
Longstanding UK government policy calls for an end to Israel's military occupation of the Occupied Palestinian Territories as part of a negotiated "two-state solution".
The UK has for decades endorsed the position of international law, under which Israeli settlements are seen as illegal - although Israel disputes this - and sees their expansion as an "obstacle to peace".
This has received criticism from some Tory MPs as well as Labour. The bill passed its first stage in the Commons last week, with two Conservative MPs voting against it.
What did Mr Gove tell MPs?
On 3 July, the chair of the Foreign Affairs Committee Alicia Kearns MP asked Michael Gove in the House of Commons if any diplomatic posts had "specifically advised the government" that the bill could contravene our UN security council resolutions.
Michael Gove responded saying: "I know of no such advice."
The Conservative MP William Wragg also asked him if he had read the "write-round" from the Foreign Office advising against this clause and asking if he had spoken to the foreign secretary about it.
Mr Gove said: "Every minister supports the bill, and quite rightly", despite the concerns that had been raised on behalf of Mr Cleverly in the Foreign Office letter to Downing Street.
Mr Gove's department for Levelling Up, and the Foreign Office, has been asked to comment.