* Petition calls on Supreme Court to intervene over contract
* Germany's ThyssenKrupp received $1.5 billion submarine deal
* Israel wants German firm to build patrol vessels too
* Questions raised about middleman and Netanyahu's lawyer
By Luke Baker
JERUSALEM, Dec 13 (Reuters) - Israeli lawyers will petition the Supreme Court on Tuesday to intervene over the awarding of a defence contract to Germany's ThyssenKrupp amid allegations of a conflict of interest involving Prime Minister Benjamin Netanyahu's own lawyer.
The petition, sponsored by Erel Margalit, a high-tech entrepreneur and opposition member of Israel's parliament, argues that there was a lack of transparency in how a $2 billion order for three submarines and four patrol vessels was awarded to ThyssenKrupp Marine Systems.
The concerns focus on the role of Netanyahu's personal lawyer, David Shimron, who is also his cousin. Shimron represented the intermediary on the deal, Israeli businessman Miki Ganor, who Israeli media say is set to earn $10 million.
Shimron has denied any impropriety and Netanyahu has said he stands fully behind him. The attorney-general has ordered police to investigate Shimron, but Margalit says it is too narrow an inquiry and a much broader investigation is required.
"Israel needs to buy arms, planes, ships and missiles," Margalit, a member of the main opposition centre-left Zionist Union party, told Reuters. "If someone is playing games with that, then it undermines trust and it needs to be investigated.
"The way these deals were handled compromised our ability to understand what's going on... I'm talking about a major diversion of security arms deals. These are serious issues."
The petition is what is known in Israel as a "show cause" order. If acted upon, it would involve the Supreme Court asking the attorney-general to explain why he does not see fit to widen the scope of his investigation.
The court has issued many such orders in the past, including a high-profile one in 2011 when it asked the government to explain its security policies towards Israeli Arabs.
As well as the relationship between Shimron and Ganor, which ThyssenKrupp has said it is also investigating, Margalit said several other aspects of the agreement should give the Israeli public cause for concern.
First, for decades Israel relied on a former brigadier general, dubbed the "Submarine King", to broker orders with Germany. But in 2009 he was unexpectedly replaced by Ganor, who has far less experience. Ganor has not spoken about his role.
Secondly, since the deal was finalised in October, it has emerged that Iran's foreign investment fund is a major shareholder in ThyssenKrupp, with a 4.5 percent stake. With Israel and Iran enemies, Margalit said Israelis deserved reassurances that Tehran is not benefiting from the deal.
A further area of concern is that Israel's former defence minister originally planned a tender for the patrol vessels, with several countries interested in bidding. But instead of a tender, the $450 million contract was awarded to ThyssenKrupp. The government has said it followed all appropriate procedures.
"I've taken 14 companies public on Nasdaq," said Margalit, who started one of Israel's most successful venture capital funds. "There's a transparency involved.
"When it comes to these contracts, we do not know many of the issues... You have to ask yourself if there was proper conduct. That's why we need a full investigation."
The right-wing Netanyahu, who has been in power for 10 years spread over four terms, has drawn frequent legal scrutiny, including over whether he and his wife have used state funds to support what critics say is a lavish lifestyle.
There is no indication the submarine affair reaches his office directly, but Margalit said the public deserved clarity.
"We need to make sure the attorney-general explains himself... and that there are checks and balances on a moral and personal level." (Writing by Luke Baker; editing by Mark Heinrich)