JERUSALEM -- Israel and Mozambique have been holding secret talks about establishing diplomatic relations, but Israeli officials said the potential breakthrough may have been delayed by Israel's inability to find $1 million to start an aid project in the war-torn southern African nation.

Israel has asked the United States to help raise the money. State Department officials said the issue is still open, but they suggested that Israel should be able to fund the money itself. They added that the Reagan administration is reluctant to establish the principle of Israeli dependence on Washington to finance aid projects as part of its efforts to expand diplomatic ties in black Africa.

The forging of diplomatic relations with Mozambique would be considered a major breakthrough for Israel, which has reestablished ties with five conservative black African states in recent years but has yet to crack the subcontinent's more radical camp, of which Mozambique is a member.

It would also be a victory for antiapartheid elements in Israel who have fought an uphill battle to distance Jerusalem publicly from the South African government and could point to a Mozambican opening as one result of their efforts.

For Mozambique, relations with Israel would be further confirmation of its political and economic realignment toward the West and would provide it with a new ally in dealing with both Washington and Pretoria.

Mozambican sources in Washington and Israeli officials said Israel has sent two diplomatic delegations to Maputo in the last two years, the latest about two months ago. Contacts also were made between members of Mozambican President Joaquim Chissano's delegation and Israeli diplomats when Chissano visted Washington last month, the sources said.

Chissano publicly hinted at changes in Mozambique's longstanding official hostility to the Jewish state at an Oct. 1 press conference at the United Nations. He said his government's position had been altered by the fact that Israel had adopted new restrictions on the close ties it previously had with South Africa and had denied any involvement with the Mozambican rebel movement Renamo.

"We may find ways of accommodation with Israel because there are new conditions," Chissano said.

Both sides said the Israeli delegations to Maputo received a friendly welcome from a country that until recent years was considered firmly in the anti-Zionist camp. They said Mozambican officials indicated that the establishment of diplomatic relations was possible, but that they were concerned about negative reactions from Arab members of the Organization of African Unity and wanted a commitment from Israel to help rebuild the country's devastated economy.

Israeli officials said they are prepared to assist Mozambique but that a snag has developed over the first project proposed by Maputo: the rehabilitation of a state-run 86,000-acre cotton plantation in Zambezia.

Mozambique has requested Israeli financial and technical help in reviving the plantation and turning it into a food crop-producing enterprise. The Israelis in turn have approached the State Department for help in raising $1 million to start work on the project.

Israeli officials said the State Department at first encouraged the Israeli approach to Mozambique and indicated that funding might be possible. But when the specific project was raised, the officials said, U.S. diplomats backed away.

"The State Department had told us on more than one occasion they would have a very positive view of Israeli involvement in Mozambique," said a senior Israeli official, who asked that his name not be published. "But when the request came up and we turned to Washington to call in our pledge, we found that the department was not in a position to do anything."

The official said the State Department raised several objections to funding the project, citing the lack of security in the area because of Renamo attacks and a U.S. policy of financing only privately run projects in Mozambique rather than those controlled by the government.

But the real objection, U.S. officials reportedly made clear, was political -- the opposition of conservative Republican congressmen to any additional aid to Mozambique, a Marxist-oriented state that in recent years, faced with a deepening economic crisis and a South African-supported insurgency, has begun to reevaluate its centralized, state-dominated economic policies.

In Washington, a State Department official said that the issue of U.S. funding for the project was "still basically open," and "in the end, we may."

He suggested, however, that Israel should be able to find the money.

The State Department official also noted that the administration was hard-pressed now to find sufficient funds even for U.S. aid projects in Africa because of the sharp cutbacks in U.S. foreign assistance generally mandated by Congress.

"Things are stalled for now," said the Israeli official. "If we are obliged to disappoint the Mozambicans on this project, I don't believe we will see any movement {on relations} for a while . . . . It's certainly within the power of Washington to make this happen."

Mozambican and Israeli sources said Chissano's government hopes to use Israeli leverage to help curtail South Africa's involvement with the rebels.

Washington Post staff writer David B. Ottaway contributed to this report.