The perpetrators called their scheme Operation Screw the Banks. In a massive sting with diplomatic repercussions, nearly 100 garment merchants in the Sentier district of Paris next to the Bourse defrauded banks, textile and clothing suppliers and insurance companies of Ffr 540 million (£64.4 million) in 1996 and 1997.

After 18 months of investigation, two dramatic raids on the garment district and 188 arrests, the French Financial Research and Investigation Brigade (BRIF) uncovered nine distinct but interlinked networks who set up "an extraordinary revolving door system of operations carried out in a very short time, before the banks realised what was happening".

Since February 20th, 124 accused have been on trial in a purpose-built courtroom in the Paris Palais de Justice.

Charges include fraud, conspiracy to defraud, forgery, fraudulent bankruptcy, money laundering and immigration offences.

Deliberations should end next month, and a verdict is expected in the autumn. Defendants risk substantial fines and up to 10 years in prison.

Some of the victims - 34 French banks and insurance companies - are civil plaintiffs. One of the accused, a Turkish immigrant named Ekrem Sanioglu, blamed them. "The banks wanted to deal with several companies to spread their risk," he told the court.

"That's how it started."

In testimony this week, Mr Sanioglu and his former mistress and accountant, Valerie Tirel, accused one another of responsibility for the fraud committed by their network.

The Financial Brigade is also critical of the banks, who were slow to notify authorities. "Despite their unkept promise to create an inter-bank pool, the banks, as a general rule, never provided the necessary co-operation," the BRIF has reported. "As stated repeatedly, the banks have not facilitated the work of the justice system."

The prosecution says that 93 Sentier companies composed "a gigantic fraudulent organisation", which used three techniques to obtain money. In the most common, known as "cavalerie", the garment merchants circulated 2,700 bogus notes of credit and invoices issued by fictitious businesses. With these IOUs for merchandise on order, the criminals asked banks to advance payment in exchange for a commission. But both the supplier and the customer declared bankruptcy before deals were completed, and the banks were never paid back.

A second technique, called "carambouille" in slang, consisted of ordering clothing that was sold on the black market and never paid for. The "carambouille" was often combined with insurance fraud. Merchants sold clothing for cash, then burned down their own warehouses. After a clothing warehouse in the Paris suburb of Aubervilliers was destroyed in April 1997, its owners collected Ffr16million in compensation from insurance companies.

One of the accused, Raphael Elalouf, explained how his network - whose leaders were called "little Sam" and "big Sam" - functioned. "Big Sam", whose real name is Samson Simeoni, has fled to Israel. "Little Sam" Brami was arrested in a hotel the night before he too planned to leave France.

"At the head, Samy (Brami) organised it. . . Below him, there were several companies in trouble. Their bosses had decided to get out of the business, but contacted Samy. At that point he started making big orders with notes of credit. Of the merchandise coming into these failing companies - which no one intended to pay for - the head of the company kept some for himself and the rest was resold by me when I worked for Samy."

Twelve of the accused, many of whom are Tunisian Jews, have taken advantage of Israel's "law of return", which automatically grants Israeli nationality to Jews from anywhere in the world. A thirteenth, Michael Tal, had lived in Israel since December 1997. He was arrested in a Paris restaurant the day after the trial started, with pockets full of diamonds. Mr Tal had become a jeweller in Tel Aviv after leaving the garment district.

The French prosecutor Francois Franchi has accused Israel of sheltering the 12 defendants who are being tried in absentia.

"Although they signed a convention on international cooperation, Israel has not respected its commitments and has made no effort to find the accused," Mr Franchi said.

"It does this in a deliberate way, putting itself beyond the pale of the international community. Its banking system encourages actions which explain what happened in this case."

The ill-gotten gains of Operation Screw the Banks also transited Belgium and Austria, but attention has focused on the scandal's Middle East connections. Some of the defendants are Turkish or Armenian, and most of the accountants were women.

Francis Caballero, a lawyer for a female defendant, has complained that the mass trial creates "discount justice". The 23,000-page file has been put on a CD-Rom - an innovation for French justice - but Mr Caballero says it would take 400 hours to read it. "To attend the 40 scheduled sessions (of the trial) will take 200 hours," the lawyer calculated. "At Ffr1,500 per hour that comes to an exorbitant sum for my client."

Mr Caballero also complained that similarities between the Sentier trial and the 1998 "maxi-trial" of 138 alleged Algerian extremists would lead to "shameful confusion".

"At the time, they were trying alleged Islamist terrorists," he said. "Today they're talking about Jewish merchants from the Sentier district. In the minds of the public, it's like saying all Muslims are terrorists and all Jews are crooks and liars."

Israel figures on the list of money-laundering countries drawn up by the G7's Financial Action Task Force. But an official from the Israeli ministry of justice protested at Mr Franchi's outburst, saying that French authorities had not provided the documents needed to process extradition of the 12, who include a former Israeli army officer named Chaim Weizman.

Mr Weizman used to walk around the Paris garment district wearing his military uniform. French sources say two Israeli demands thwarted co-operation. If convicted, the Israelis insist that the accused be allowed to serve their prison sentences in Israel. The Jewish State also demanded proof of their guilt before extradition and trial.