JERUSALEM (Reuters) - Israel's Mossad spy service and a foreign counterpart enlisted a confidante of Osama bin Laden to kill the al Qaeda leader in 1996 but the plan fell apart over a political dispute, a newspaper said on Thursday.

Mossad picked up bin Laden's trail while helping U.S. and Egyptian agents probe an attempt by Islamist militants on the life of Egypt's President Hosni Mubarak as he visited Ethiopia, Israeli daily Yedioth Aharonoth said citing security sources.

According to the report, Mossad recruited a woman close to bin Laden with the help of the intelligence service in her country. Neither the woman's name nor nationality were given.

Yedioth said the woman was meant to kill bin Laden, but the mission was aborted as a result of a breakdown of ties between Israel and her country linked to Israeli-Palestinian tensions.

Contacted by Reuters, Danny Yatom, who was head of Mossad at the time, declined comment on the report.

U.S. officials believe bin Laden is now hiding in the region of the rugged border demarcating Afghanistan and Pakistan.