Saudi Arabia's (search) less-than-full cooperation has hindered U.S. efforts to choke off terrorist financing, a House lawmaker said Wednesday as a Bush administration official conceded the Saudis need to be prodded in that area.

Juan Zarate, the Treasury Department's assistant secretary for terrorist financing, also said Treasury investigators have not found a direct link between Al Qaeda (search) and the illicit diamond trade in Africa but did not rule one out.

"We have not seen direct links," Zarate said in testimony before the oversight panel of the House Financial Services Committee.

Even without a direct tie, U.S. authorities are concerned that Al Qaeda leader Usama bin Laden (search) could be involved indirectly in trade in diamonds, gold and tanzanite or could become a direct participant, Zarate later told reporters.

Rep. Sue Kelly (search), R-N.Y., who heads the subcommittee, asked Zarate at the hearing whether the Saudis have followed through on promises to take up such measures as setting up a financial intelligence unit and seizing assets of individuals believed to help fund terrorism.

Despite Saudi Arabia's announcement in 2002 that it had established such an intelligence unit, there still appears to be no unit operating, Kelly said. She said the absence of one likely "slowed or entirely prevented action against terrorist activity."

Zarate said the Saudis had shown improved cooperation in freezing assets of suspect charities and other measures and "are taking this issue very seriously." However, he added: "We are constantly working with the Saudis to ensure" that they follow through.

Spokesmen at the Saudi Embassy in Washington had no immediate comment.

Since the U.S. government intensified efforts against terrorist financing after the 9/11 attacks, its relationship with Saudi Arabia has been delicate. The long-standing ally — which is also the birthplace of bin Laden and 15 of the 19 Sept. 11 hijackers — has at times appeared reluctant to be a full partner in the U.S.-organized anti-terror coalition.

Al Qaeda launched a campaign in Saudi Arabia in May 2003, bombing Westerners' housing compounds in the capital, Riyadh.

Earlier this month, the kingdom played host to an international anti-terrorism conference, where Saudi leaders expressed their commitment to fighting terrorism.

Some experts say there is evidence of Al Qaeda's ties to the illicit African diamond trade. But U.S. intelligence officials and the independent 9/11 commission have maintained there is no conclusive proof that the terror network laundered millions of dollars through diamonds before staging the U.S. attacks.

Al Qaeda and its affiliates have been linked to the heroin trade in Afghanistan, credit card fraud in Europe and the lucrative trade in counterfeit goods as means of financing their terrorist activities.