A story published in The Guardian newspaper said that documents lodged by Fayed with a court in Los Angeles reveal details of an elaborate plan to extort $20 m from the Harrods owner by offering him fake CIA telexes about the plot and Diana's pregnancy.

Since the car crash in Paris on August 31 1997, in which Diana and Dodi were killed, Fayed has held publicly that their deaths were the work of British intelligence agency, MI6.

According to The Guardian, the court papers allege that in late 1997 or early 1998, the three men named in the action, Oswald LeWinter, an Austrian-born American who claims to have been a high-ranking CIA officer, Pat Macmillan, also an alleged former CIA agent and George Williamson, an investigative reporter, decided to forge intelligence documents discussing the assassination of Diana.

Their plan was to offer the documents for $1m to the tabloid newspaper, National Inquirer. They asked lawyer Keith Fleer to broker the deal. Fleer advised them that a more lucrative bet would be to approach Mohammed al Fayed direct, since Fayed had said that he would pay up to $20m for information concerning the death of his son and the princess.

The plan and the $20m price tag were agreed upon.

Fleer first contacted Harrod's security chief, John McNamara, in early April 1998. He said he was acting for ``reliable individuals with credible information'' that the deaths of Dodi and Diana were engineered ``at the behest of British intelligence'' with the ``acquiescence of Buckingham Palace''.

He said that there were telexes to prove that aCIA agent in Europe had been contacted by MI6 asking for help in assembling an assassination team and that CIA headquarters had ordered no CIA involvement other than to pass on, to MI6, the name of a contact for a Mossad-linked team in Switzerland. Fleer said, that they could also supply a medical document proving Diana was pregnant.

McNamara and Fayed played along, but with their own plan. At this point they called in the US authorities and an elaborate sting operation, co-ordinated by the FBI, was set up.

On April 14, Fayed transferred an ``advance'' of $25,000 into a bank account in New Mexico. Williamson collected the money. It was agreed that the documents would be handed over in Vienna and that the balance of money would be deposited at an Austrian bank, Kredit Anstalt, in an anonymous passbook account.

On April 22 1998, following Fleer's instructions, McNamara went to the Hotel Ambassador in Vienna, taking a table on the Kartner Strasse side. At 2.30 p.m., he was approached by a man callinghimself George Mearah, who later turned out to be Le Winter. A second meeting was arranged at which Le Winter was arrested by the Austrian security services supported by the FBI.

In Le Winter's room, at the Hotel Stadt Bamberg, police found a US government document wallet containing the forged CIA documents, a pistol with ammunition and $10,000 in cash. In October last year, Le Winter was jailed by a Vienna court for four years, for attempted criminal fraud.

The hotel room Le Winter was using was booked in the name of Karl Koecher, a well-known figure in the espionage world, who was released by the US in 1985 in exchange for the Soviet dissident Natan Scharansky. Koecher, who is said to have set up the passbook account, has not been named in the action because he is thought to be in the Czech Republic.

According to The Guardian an FBI criminal investigation into the allegations of extortion and fraud is underway in the US, although no one has yet been prosecuted. Mohammed Al Fayed feels that theCIA has intervened to prevent prosecution of the men in order to cover up its involvement in the affair. The Harrod's boss still believes that there was a conspiracy.

And, to add a final twist to the tale, Le Winter has since told McNamara that although the papers he was being sold were forgeries, they were based on real documents held by the CIA.