The European Union's Tempus programme, set up to aid the transition process in former eastern bloc countries, could be extended to universities in the West Bank and Gaza.
Universities in north Africa and the Levant will also be allowed to draw on EU grants to fund exchange projects with academic institutions in EU states and to pay for cooperation in curriculum development and the forging of international academic networks.
The European Commission wants to extend its Tempus programme, launched after the fall of communism in 1989-90, to eight Arab countries and Israel.
EU ministers have to approve an extension of the scheme by drawing on money from Europe's MEDA programme, designed to improve relations with non-European Mediterranean states.
Education commissioner Viviane Reding said: "A successful dialogue between cultures needs solid foundations, and those foundations are education and culture, which enable citizens to get to know each other better. In proposing to extend the Tempus programme, the commission will enable teachers, students and researchers to work better together and help to forge solid links on both sides of the Mediterranean."
If agreed, €21.5 million (£13 million) in 2003 and €21.5 million in 2004 would be earmarked from the MEDA budget. The countries that would benefit are Morocco, Algeria, Tunisia, Egypt, Israel, Jordan, Syria and Lebanon, and the Palestinian Authority.