CAIRO Ñ NATO plans to conduct a Middle East exercise in 2005 that would include Israel.

Arab diplomatic sources said NATO has been discussing the exercise with Israel and at least four Arab countries. The sources said that so far the Arabs have not rejected participating in the first military exercise with the Jewish state.

The proposed naval exercise would take place in the first quarter of 2005, the sources said. They said in addition to Israel the exercise would include Algeria, Egypt, Morocco and Tunisia. All four Arab states are members of NATO's Mediterranean Dialogue, Middle East Newsline reported.

The sources did not provide details of the exercise, but did not rule out that the Middle East states would attend as observers. They said the planned maneuvers would be organized by NATO and include assets from navies of the Western alliance.

The planned exercise was part of increasing ties between NATO and North African states. On Tuesday, representatives of five North African and five European states signed a defense and security cooperation memorandum in France.

The sources said Libya has been angered by the agreement of North African states to participate in the NATO exercise with Israel. They said this prompted a decision by Libyan ruler Moammar Khaddafy to reject an offer to chair the Maghreb Union, an alliance of North African states.