* Urges Air Force start developing modified fighter

* Japan, Israel, Australia have shown interest

* Bill ends F-22 production for U.S. Air Force

(Adds call to end ban on exports of F-22 jet fighter)

By Jim Wolf

WASHINGTON, Sept 10 (Reuters) - A Senate panel urged the Air Force on Thursday to start developing an export model of its F-22 Raptor, the most advanced U.S. fighter jet, even as it voted to end U.S. purchases.

Japan, Israel and Australia have shown interest in buying the supersonic, radar-evading F-22 Raptor, designed to destroy enemy air defenses in the first days of any conflict and clear the way for other missions.

Foreign sales were banned by a 1998 law aimed at protecting the “stealth” technology and other high-tech features said to have made the F-22 too good for money to buy.

If enacted, the measure adopted by the Senate Appropriations Committee would let the Defense Department prepare a modified F-22 that protects classified and sensitive information, technologies and U.S. war fighting capabilities.

“The committee urges the Air Force to start this effort within the funds appropriated in Research, Development, Test and Evaluation, Air Force, for the F-22 aircraft,” a report accompanying the bill said.

Neither Lockheed Martin nor the Air Force had any immediate comment.

Creating an export version would preserve U.S. jobs and an option to buy more F-22s later, without having to pay the full cost of restarting production.

The U.S. Air Force has estimated Japan would have to spend as much as $2.3 billion for development of its own version of the Raptor. For years, Tokyo has sought to buy two squadrons of the F-22, possibly 40 planes, a request that has become more compelling amid tensions with neighboring North Korea.

The bill, adopted 30 to 0 in 15 minutes without debate, largely backed program cuts sought by President Barack Obama. Overall, it provided $636.3 billion for defense in fiscal 2010, which starts Oct. 1.

The measure would kill a combat search-and-rescue helicopter, a presidential helicopter and a missile-defense project called Kinetic Energy Interceptor.

It includes $128.2 billion for “overseas contingency operations,” primarily to keep fighting wars in Iraq and Afghanistan.

The legislation would cap the U.S. F-22 “Raptor” fleet at 187, down from an original Air Force Cold War-era plan to buy as many as 750 of the air-superiority fighters.

Defense Secretary Robert Gates, announcing plans to terminate the F-22 on April 6, said doing so was “not a close call.” He said the military should gear up more for wars such as those in Iraq and Afghanistan.

The bill, which must be reconciled with the House of Representatives’ version, provided no funds for a second, interchangeable engine for the F-35 Joint Strike Fighter.

The alternate engine, which Obama considers wasteful, would be veto bait, the White House has said. In July, the House approved $560 million for the second engine development as part of its 2010 defense appropriations bill, despite the veto threat.

General Electric Co GE.N and Rolls-Royce Group PLC RR.L, partners in the second engine, have said they are confident a House-Senate conference committee will preserve competition for the F-35 engine.

Sen. Daniel Inouye, the Hawaii Democrat who chairs the appropriations committee and its defense subpanel, told reporters he did not know how the second engine’s fate would play out.

“Apparently the Senate is not for it, so we’ll go into conference on that basis. But as always, my mind is open,” he said.

The Senate panel put rival United Technologies Corp's UTX.N Pratt & Whitney unit, maker of a fully funded engine for the F-35, a step closer to a monopoly over a projected $100 billion market.

At issue is the engine and its aftermarket for three variants of the F-35, a single-engine Lockheed Martin fighter in early stages of production. It would replace at least 13 types of warplanes, initially for 11 nations.

The Senate committee, in sync with recommendations made Wednesday by its defense subpanel, broke with Obama on Boeing Co's BA.N C-17 cargo plane. It added $2.5 billion to sustain the production line by buying 10 more in 2010. The administration wants to end the C-17 program without further purchases.

The House approved $674 million in its defense appropriations bill to buy three more C-17s.

The full Senate could vote on the defense bill as early as next week. House and Senate representatives then meet to mesh their legislation before it is sent to the White House. The House-Senate conference is on track to take place by the end of this month, said Sen. Thad Cochran of Mississippi, the Senate panel’s top Republican. (Reporting by Jim Wolf; editing by Andre Grenon)