They had been under surveillance from as soon as they arrived in Kenya, on June 12, until they were arrested a week later, the police source, who has close knowledge of the case, said.

"Our anti-terror officers were highly suspicious of them from the moment that they landed in country," the officer said.

"Iranian terrorism knows no borders," the Israeli leader said in a statement released by his office.

The allegation comes after the US last year said Iran had plotted to assassinate the Saudi ambassador to the United States.

"After Iran sent its agents to murder the Saudi ambassador on US soil, the country has engaged in attacks in Azerbaijan, Bangkok, in Tbilisi, in New Delhi, and now we have just discovered a plot for a terrorist attack in Africa," Mr Netanyahu said.

Kenyan police refused to release precise details of the targets of the two men, Ahmad Abolfathi Mohammad and Sayed Mansour Mousavi, who have both denied charges of possessing explosives with intent to cause grievous harm.

"That is a matter before the court, and I cannot give details of what it was that we believe these men were planning," said Eric Kiraithe, spokesman for the Kenyan Police.

British diplomatic sources in Nairobi, Kenya's capital, said that there was "nothing to suggest" that the two men planned specific attacks on UK interests in the region. A British High Commission spokesman in Nairobi had no comment.

But security sources said that Israeli-owned hotels and businesses on Kenya's coast, and it's main city of Mombasa, were the likely targets.

"There's a long history of Israeli-Kenyan commerce based in Mombasa, and there is of course form there in terms of terror attacks," one said on condition of anonymity.

An al-Qaeda cell dispatched suicide bombers to target the Paradise Hotel north of Mombasa in 2002, the same day that other agents attempted to shoot down an Israel-bound charter jet taking off from the city's airport.

The rocket-propelled grenade missed, but 15 people including three Israelis died in the hotel bombing. The attacks prompted Israel to evacuate its citizens from Kenya.