PARIS — The Gulf Cooperation Council (GCC) has selected two finalists — one U.S.-Canadian, the other French-Italian — for a two-satellite military Earth observation system whose technical specifications will test the limits of what Western nations are willing to export, U.S. and European industry officials said. The winner will take home a contract roughly estimated at about $700 million.

Acting principally on behalf of Saudi Arabia, Qatar and the United Arab Emirates (UAE), the GCC is asking for radar and optical satellites equipped with sensors with a precision that has never before been exported.

The optical satellite would have a ground resolution of 50 centimeters, meaning it could detect objects that small or larger. The radar satellite would have a 1-meter resolution.

Industry officials said that after an extended technical analysis by GCC consultant Telesat Canada of Ottawa, the GCC has selected two consortia to compete for a contract that still faces several hurdles. One team is led by Raytheon Intelligence and Information Systems of Falls Church, Va., and includes Ball Aerospace and Technologies Corp. of Boulder, Colo., and MacDonald Dettwiler & Associates Ltd. of Richmond, B.C. The other team is led by Alcatel Alenia Space of France and Italy.

Astrium of Europe, which has had success in recent years in exporting optical Earth observation satellites, has been eliminated from the competition by the GCC — at least for now, officials said.

One of the most surprising elements of the procurement has been the ability of U.S. companies to win U.S. government authorization to take part. U.S. policy up to now has placed strict limits on overseas sales of space-based Earth observation technologies — limits that have effectively banned the export of spacecraft anywhere near the precision of what the GCC wants.

In 2000, U.S. export authorities prohibited a U.S. company from providing the skeletal structure, or platform, for Canada’s Radarsat 2 satellite because Canada refused to accept U.S. restrictions on sales of the imagery the satellite would collect . The business subsequently went to Alcatel Alenia Space. Radarsat 2, to be launched in 2007, will have a 3-meter ground resolution.

Times have changed. For the GCC bid, the French and German governments have expressed reservations about whether to permit their industry to take part. One industry official said this hesitation may have played a role in Astrium’s early exit from the competition. Astrium’s German arm would have been responsible for producing the radar system.

“The U.S. decision was a surprise, given the policy as we have understood it up to now,” one industry official said. “But the U.S. needs friends in that region now, and of course the contract would be a good one for U.S. industry. Believe me — no company spends the amount of time and money needed to assemble a bid for a contract like this without receiving government approval. Responding to the RFP [request for proposals from the GCC] took something like 1,000 pages. It’s very expensive to bid.”

Keith Little, a spokesman for Raytheon Intelligence and Information Systems, declined to comment Nov. 9 on the GCC competition. Officials from other companies involved with the bid declined to comment publicly, saying the program remains politically sensitive.

Industry officials agreed that a government approval to make a bid does not signal approval of all the specifications demanded by GCC. One official said flatly that the GCC will not be getting a 1-meter radar imager and a 50-centimeter optical system. But how far off those specifications the bidders can go before getting firm government approval, or before the customer walks away, is unknown.

“We are not going to be selling them our best technologies in satellite observation,” an industry official said. “That will not be allowed. How close can we come to that? It’s not certain. Our authorization for now is to do something of this nature with GCC. There is some latitude here, some room to maneuver.”

Another industry official said the winning bidder likely will need to secure bilateral government accords with the principal GCC members and the winner’s own home capitals before the actual work can begin.

“You might have a situation where something is permitted for Qatar or UAE, but is not fully permitted for Saudi Arabia,” this official said. “Depending on what the conditions are, that might stall or stop the project.”