An AFP cameraman at the court said that in his first appearance Ali Mansouri, 58, was silent and motionless as he sat in handcuffs, wearing a brown prison uniform.
He has yet to be charged.
News of his arrest was made public yesterday, just hours after Israeli Prime Minister Benjamin Netanyahu left for Washington and New York, determined to expose what he described as "sweet talk" by Israel's arch-foe Iran.
Israeli media quoted a police representative as telling the magistrates court in Petah Tikvah, near Tel Aviv, that the decision to ask for the lifting of a gag order on the arrest was made at "a high level."
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"Security services do not hurry to reveal, of their own volition, recent espionage affairs," its defence commentator Alex Fishman wrote.
"An espionage network is too important an operational card to trade with publicly, unless there is a particularly important operational or diplomatic interest that requires such disclosure," he added.
"In the case of the Iranian spy Ali Mansouri, the diplomatic interest behind the affair is completely transparent: Israel is trying to embarrass the Iranians in response to the successful public relations campaign that Iranian President (Hasan) Rouhani conducted in the US in the past week."
The domestic intelligence service, directly responsible to Netanyahu's office, said in a statement on Sunday that Mansouri had enrolled in a "special operations unit of the Revolutionary Guards responsible for numerous terrorist attacks around the world".
He had been using the alias Alex Mans after being recruited last year, the agency said, naming his four alleged handlers as senior Iranian officials.
The Shin Bet said that under questioning, the suspect had said he had been promised USD 1 million to use his position as a businessman to set up companies in Israel on behalf of the Iranian intelligence services to "harm Israeli and Western interests".