Sources close to the meeting expected prolonged haggling over proposals, which would require the 15 ESA members to pony up around a billion dollars to help get the problem-plagued Ariane-5 heavy launcher back on track and widen the agency's product range.

The package includes the unprecedented idea of a tie-up with Russia, traditionally a competitor to Europe in the market for satellite launches.

Russia's tried-and-tested Soyuz rocket would be used from ESA's launch pad in French Guiana to send medium-sized payloads into space.

Unlike its US rivals, which have big military contracts with the Pentagon, Arianespace, which operates ESA's rockets, is overwhelmingly dependent on launches for civilian satellites.

But that market has all but collapsed in the past two years, following the downturn in the global telecoms market and the bursting of the Internet bubble.

Under the revamp, the job of manufacturing rockets would be taken away from Arianespace and assigned solely to the European aerospace giant EADS.

ESA on Monday cleared an important obstacle for launching a competitor to the US Global Positioning System (GPS) for the world's burgeoning market in satellite navigation services.

Its members agreed terms on a legal structure for sharing funding and supervision for the project with the European Union (EU).

The scheme, named after the great Italian astronomer Galileo, is scheduled to be operational by 2008.

It is designed to girdle the globe with 30 satellites in medium Earth orbit, comprising 27 operational satellites and three reserves, plus two control centres on the ground.

In 2001, the Pentagon voiced concerns about Galileo, suggesting that it could be a security threat because of its open access.

GPS depends on military satellites that are under the control of the US Department of Defense, which can downgrade or even switch off the system if it is being used by an enemy state or a terrorist group.

Satellite navigation works by signals that are sent out by orbiting satellites. A receiver takes signals from at least three satellites in order to triangulate the user's position.

The total development and launch costs are put at around 3.2 billion euros (3.77 billion dollars), with running costs from 2008 onwards of around 220 million euros annually, the agency said.

Projections suggest it will have "very significant economic benefits, with a 460-percent return on investment and creation of over 140,000 jobs," it said.

ESA, which is institutionally separate from the EU, comprises Austria, Belgium, Britain, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.

SPACE.WIRE