An Israeli delegation met with U.S. officials last month in Washington to present their plan and the State Department said U.S. assessment teams were in the region this week to look at the viability of funding these projects.

In an interview with Reuters on Thursday, Israel's ambassador in Washington, Daniel Ayalon, said he hoped the United States, as Israel's closest ally, would be generous in helping to transform the underdeveloped, outlying Galilee and Negev regions.

"This would be a strong political message from the United States ... for what we are doing. Israel is a cornerstone for stability in the Middle East," said Ayalon.

The money would be used to boost infrastructure and provide jobs, housing and water. Ayalon said there was great potential for minerals in Negev as well as tourism and hi-tech industries.

Visibly upset by television pictures showing Israeli soldiers dragging out protesters from a synagogue in Gaza, Ayalon said it was emotionally very difficult to see young children and families being removed.

"We empathize with them and feel their pain. What we should say to them is thank you for their sacrifice. It's a pain for the country and an individual pain for those people who live there," said Ayalon.

He hoped the United States could help create a community in Negev and Galilee that could absorb millions of people.

Ayalon declined to provide specific figures on how much U.S. aid Israel was looking for, but a State Department official confirmed the Israelis had put in a request for $2.2 billion in new aid.

The ambassador said the total cost of developing these areas would amount to dozens of billions of dollars with an initial investment of about $6 billion or $7 billion.

"We are asking the United States for a fraction of this," he said.

AID FOR PALESTINIANS

For the 2006 budget, the White House has requested $240 million for Israel from the State Department's Economic Support Fund and $2.3 billion in foreign military financing. In 2005, Israel, the largest recipient of U.S. aid, got nearly $2.6 billion, most of it military.

Any new aid requests to cover Negev or Galilee would likely emerge in a supplemental budget request from the White House next year, said U.S. officials, who asked not to be named because it was a sensitive issue.

"There is no specific course of action yet but discussions are continuing as to how we can move ahead on aid packages," said State Department spokesman Gregg Sullivan.

Sullivan said the United States was looking at ways to support both the Israeli and Palestinian economies and it would become clearer what was needed when disengagement was over.

"It will switch into high gear after disengagement," he said.

The Palestinians were promised $3 billion from the Group of Eight industrialized nations last month and the Bush administration also is looking into what it can do to help improve the lives of Palestinians.

Over the past year, the Palestinians have been given more than $150 million in U.S. aid, including $50 million in direct assistance to the Palestinian Authority.

Last week, the U.S. Agency for International Development advertised contracts to improve roads in Gaza as well as a feasibility study with the World Bank on a secure transport system linking Gaza and the West Bank.