Red tape could mean closure of Eilat hotel favoured by UK tourists

But, according to Mr Tesler, the Israeli bank which provided a loan to the hotel worth £25 million will accept only Isrotel as managers.

"We are stuck in a catch-22 situation," said Mr Tesler. "The monopolies commission has decided to rule against our Isrotel contract and the bank has said that if we don't have a contract with Isrotel, they want their money back. It's over-bureaucracy."

Since it opened 13 years ago the hotel has attracted celebrities such as Hollywood actor Robert De Niro and opera singer Andrea Bocelli, as well as politicians including Tony Blair, Benjamin Netanyahu and Shimon Peres.

It has also drawn crowds of holidaymakers from the UK Jewish community. "The 'who's who' of north-London Jews stayed here," said Mr Tesler.

He described the current situation as "sad. The most stupid thing about it is that the Princess is in good shape - it's profitable."

The Knesset's economics committee is due to discuss the hotel's predicament next week.