According to Deep Junior programmer Amir Ban the organisers received a message from Kasparov's agent on Jan 2 saying that he would not arrive for the Jerusalem event. The reason given is this:

First International Bank of Israel (FIBI) has loaned KasparovChess money. On Christmas eve, they filed for an injunction in a Delaware court (where KasparovChess is incorporated) against directors of KasparovChess (including Kasparov) to bring the web-site back online, so as to protect their interests. The judge dismissed the motion.

Due to this, and due to threats he says Kasparov received of being sued by FIBI, his US attorney advised him not to go now to Israel. In addition, and also due to the press asking questions about this, he cannot concentrate for the match.

Kasparov's agent concluded by asking that the matter be referred to Kasparov's US attorney. We are told that on Jan 5th FIBI sent Kasparov written assurances that they will not take legal action during his stay for the match.

See also Kasparov cancels on Israel chess competition after "FIBI threats" in Globes online. Here are some excerpts:

Kasparov said he had hoped to express his support for Israel at this time through his participation in the competition. Kasparov said that after hearing appeals and in an attempt to minimize damage to the competition, he was planning to participate in the competition via a computer hookup from Moscow. The chess player emphasized that he had many friends in Israel and would be happy to come in the future once legal issues were resolved.

[According to Kasparov’s American attorney, Richard A. Conn] FIBI is trying to damage Kasparov’s name as a top world chess player, in order to squeeze him to pay a corporate obligation. He added that Kasparov Chess Online Inc. established the Web site together with a number of partners from Israel and the United States and that Kasparov himself was responsible for the site content, and invested over $100,000 in the site.