The sale of shares to the public had been preferred to selling a stake to a strategic investor, the director-general of Israel's Government Companies Authority Eyal Gabbai said in a statement.

The state will have to decide whether to allow flights on Saturdays or to compromise on the price it will receive for the company Eyal Gabbai, IGCA

The Israeli newspaper Ha'aretz quoted unnamed officials as saying net proceeds from the sale would be a few million dollars and could be close to nothing because of a $80m (£48.7m) government-fund restructuring of the company.

The proposed sale comes as the central bank reported a 38% fall in foreign investment in Israel in 2002 due partly to the 28-month-long Palestinian uprising.

The Bank of Israel said foreign investment amounted to $2.6bn last year compared with $4.2bn in 2001 and a record $11.1bn in 2000.

Sabbath ban

The government's El Al stake would initially be cut to 49% before an outright sale, Israeli newspaper Ha'aretz quoted Mr Gabbai as saying.

The government will maintain a golden share in the airline for security reasons and workers will be offered 10%, he said.

The issue of the government ban on Saturday flights, during the Jewish Sabbath, has not been resolved and might affect the price.

"The state will have to decide whether to allow flights on Saturdays or to compromise on the price it will receive for the company," Mr Gabbai was quoted as saying.

The Government Companies Authority said it was looking for underwriters. A prospectus is due to be presented to the Israeli securities authority next month.