He evaded Israeli security services by using a relative’s passport.
The 62-year-old fled to Britain in the 1990s and later ended up obtaining UK citizenship.
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Sawalha continued to work for Hamas and held secret talks about “revitalising” terrorist acts in Israel”.
He later helped launder money to support activities in both Gaza and the West Bank, an indictment from the US Department of Justice has revealed.
Sawalha met Kremlin officals Moscow as part of Hamas' official delegation and served on Hamas’s politburo between 2013 and 2017.
Israel designated Sawalha, who has never been charged with an offence in the UK, as belonging to Hamas and stressed he will be arrested if he returns to the country.
Despite his involvement, the father-of-three obtained British citizenship in the early 2000s.
Home Office guidance states that anyone who “incites, justifies or glorifies” terrorist violence or “seeks to provoke others to terrorist acts” will ordinarily be denied citizenship.
Sawalha was later invited to attend Parliament by former Labour leader Jeremy Corbyn during an event to discuss Gaza shortly before he succeeded Ed Milliband in 2015.
He became a council tenant at a two-storey property with a garden and garage in the London Borough of Barnet in 2003.
The local authority has the highest Jewish population of any in Britain, with 56,616 making up roughly a fifth of the nation’s overall population.
Sawalha and his 56-year-old wife Sawsan used the Right to Buy scheme to purchase their home for £320,700 in June 2021.
Barnet council granted the couple a £112,300 discount on its market value, £500 short of the maximum discount available during the financial year, and the pair have no mortgage on the property.
Council leader Barry Rawlings said he was “horrified to think [Sawalha] could be living in our midst” and confirmed he had launched a review.
Rawlings added: “We will liaise with other stakeholders including the police and the government in reviewing the full history of this case and will take all appropriate action.
“This has emerged at a time when communities locally are in desperate need of reassurance following the escalating conflict in the Middle East, and we have a responsibility as the council to ensure we can give that reassurance.”
Barnet has been identified as an area particularly impacted by the ongoing housing crisis.
Its deputy leader said: “Many of our residents are deeply affected by the acute housing shortage.”
The disclosures pose questions of the Home Office and security services in allowing Hamas leaders to live freely within the UK.
Robin Simcox, the Home Office’s new independent adviser on countering extremism, last week voiced his concern that Hamas “does not carry the stigma that support for other terrorist groups does”.
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Rawlings said: “All social housing tenants were — and still are — offered accommodation based on need.
“The process does of course ensure the applicant is legally entitled to the tenancy but does not involve a background check of their political affiliations or membership of different groups.”
He added: “Likewise, all council properties are sold based on Right to Buy legislation, which also does not involve such a background check.
“Even if it did, we would still have to operate within the law and unless someone is committing a crime this couldn’t be used to withhold the right to buy.”
A Scotland Yard spokesman said: “In June 2020, the Met received a referral relating to a third party allegation made against a local authority, alleging a breach of the Terrorist Asset-Freezing etc. Act 2010.
“The referral was assessed by officers from the National Terrorist Financing Investigation Unit, a specialist team based within the Met’s counterterrorism command. It was determined that the evidential test was not met. No further action was taken.”
However, Sawalha’s lawyers stressed a number of “serious false allegations” were made against their client, adding: “[He] is a law-abiding British citizen.”