During questioning, it emerged that Sharon had visited Lebanon 11 times on his German passport over the last two years. He denied allegations he was on an espionage mission and said he was in Lebanon for leisure purposes, according to the source.
Media reports said that police in the Merje area, a hotbed of the Lebanese Shiite Hezbollah movement in Beirut's southern suburbs, were investigating the killing of Moussa al-Shalaani when the probe led them to Sharon.
Al-Shalaani had been shot with a gun belonging to a security officer who had been his roommate. The roommate was summoned for questioning, and maintained that he had lost his gun.
The roommate also said that during the time of the murder, he had been with his German friend who was residing at the Four Points Sheraton hotel in Beirut's luxurious Verdun neighbourhood. A hotel employee told the police that Sharon had paid him to not write his full name on any documents.
"His conflicting testimonies led the authorities to arrest him, and further investigations are underway in a murder case and espionage," the judicial source said.
"He is denying charges of espionage and insists that he is gay and he likes to have sexual relations with Lebanese men and that is why his visits to Lebanon were frequent," the source said.
"But further investigations into the case showed that Sharon had a friend in the Lebanese security offices who used to facilitate his entries to Lebanon and with the help of a hotel clerk he managed to hide his real name," the source added.
A Lebanese security agent was also held for questioning about his relations with the Israeli man after the two maintained contacts through the Internet, said officials, who spoke on condition of anonymity because they were not authorized to talk to the media. Lebanon forbids any contacts or dealings with Israel.
Lebanon's General Prosecutor Saeed Mirza said investigations were underway into how the story was leaked to the press.
During questioning, it emerged that Sharon is well-versed regarding Lebanon, speaks Arabic well and knows how to use he language's many idioms. According to reports, Sharon learned Arabic in the United Arab Emirates from a teacher of Bahraini citizenship. The Lebanese media reported that Sharon kept his cool during questioning and denied accusations that he was a spy.