A US government report says Israel probably violated the terms of its arms deals with Washington by using US-made cluster bombs in Lebanon last year.
The US State Department looked into Israel's use of cluster bombs in civilian areas of southern Lebanon during its conflict with Hezbollah.
Cluster bombs can scatter hundreds of small bomblets over a wide area, and their use has been widely criticised.
The International Committee of the Red Cross called for a ban on the use of cluster bombs in populated areas.
US President George W Bush has discretion under US law over whether to punish Israel, which receives $3 billion in US military aid each year, the biggest amount of any US ally.
Israel was barred from buying US cluster munitions for six years in the 1980s after the administration of president Ronald Reagan found it had made unauthorised use of the weapons during the 1982 invasion of Lebanon.
Israel now manufactures its own cluster munitions, so a renewal of the export ban would be largely of symbolic significance.
Israel dropped more than one million cluster bombs in southern Lebanon during the war against Hezbollah last summer, according to the United Nations.
