* Australian man's death in Israel tests censorship limits
* Military censorship faces new challenge in Internet age
* Security-related issues subject to censor's review
By Jeffrey Heller
JERUSALEM, Feb 13 (Reuters) - The mysterious death of an Australian prisoner in Israel has put the spotlight on a military-run censorship system that is finding it harder to black out secret information often only a mouse click away on the Internet.
The case involves a man reported by Australia's ABC channel on Tuesday to have been a member of Israel's Mossad spy agency. According to the report, he committed suicide in prison in 2010 in an isolated top-security wing originally built for the assassin of Prime Minister Yitzhak Rabin.
Why the man, identified by ABC as Ben Zygier, an immigrant to Israel, was jailed is still a closely guarded secret, and reports dealing with matters of state security must be submitted to military censors for vetting.
In a highly unusual move within hours of the ABC broadcast, Israeli editors were summoned to an emergency meeting in Prime Minister Benjamin Netanyahu's office and asked not to publish a story "that is very embarrassing to a certain government agency", Israel's Haaretz newspaper reported.
Israeli news outlets that had carried the report scrambled to remove it from their websites, but that only drew attention to the case. Chatter ran rampant on Twitter and Facebook, offering polyglot Israelis links to foreign news sites.
For decades, journalists in Israel have been required to sign an undertaking to abide by military censorship rules when they apply for accreditation from the government press office. Reporters risk being denied press cards and, in the case of foreigners, work visas if they violate the regulations.
"You either work with us, or you work abroad," a military censor, cautioning against reporting where Palestinian rockets were landing in Israel, warned a Reuters correspondent during an eight-day Gaza war in November.
In the age of the Internet, efforts by Israel to put the genie back in the bottle proved fruitless.
"People in the state, in the Shin Bet (internal security agency) and the courts conduct themselves as if we were still in the stone age," said Avigdor Feldman, an Israeli attorney whose clients have included nuclear whistle-blower Mordechai Vanunu.
Vanunu, a former technician in Israel's top secret Dimona nuclear reactor told Britain's Sunday Times newspaper in 1986 that atomic bombs were produced at the facility. He was jailed as a traitor and served 18 years in prison.
"These things are ultimately revealed. People talk, and not just on the Internet. The tight-lip that once typified this country is no longer ... all the gag orders just shame the courts and the country," he told Reuters.
Aluf Benn, editor of Israel's liberal Haaretz newspaper, said Israeli security authorities and judges who issue gag orders at their request find it hard to come to terms with the concept of a free media operating in a democracy.
"For (Mossad chief Tamir) Pardo and his ilk, the Israeli media are a branch of the state ... that is why we are forced absurdly to quote foreign news sources about military operations, intelligence snafus and clandestine trials," Benn wrote in a commentary in his newspaper.
"Generation after generation, the military censor has explained to reporters that anything published by an Israeli outlet is seen by the international community as an official statement, whereas reports by foreign news sources are not."
So when controversial incidents take place, such as an attack on Syria last month that the Damascus government said was carried out by the Israeli air force, Israeli media are banned from publishing their own information.
And while Israel's nuclear arms have been an open secret for decades, reference to the arsenal has always been attributed in the local press to "foreign reports".
Curiously, the case of "Prisoner X" was deemed so sensitive that for almost 24 hours the authorities tried to prevent any word seeping out into the local media.
They finally raised the white flag after left-wing and Arab legislators used their parliamentary immunity to demand explanations about the affair on the floor of the Knesset, enabling Israeli papers to at least allude to the story.
On Tuesday the gag orders were eased to allow the media to carry foreign reports of the case, but the censors told journalists not to identify the dead man's wife and two children - information that is readily available on the Internet.
Gad Shimron, a former Mossad officer who writes on intelligence matters, told Reuters he had no knowledge about Zygier, "but in the 21st century, in the age of Facebook and Twitter, I simply don't believe such secrecy can be maintained". (Additional reporting by Maayan Lubell, Dan Williams and Crispian Balmer; Editing by Alison Williams)