A draft report from the Drug Enforcement Administration - which first characterized the activities as suspicious - said the youths' actions "may well be an organized intelligence-gathering activity."
Immigration officials deported them for visa violations; no criminal espionage charges were filed.
The arrests, made in an unspecified number of major U.S. cities from California to Florida, came amid public warnings from U.S. intelligence agencies about suspicious behavior by people posing as Israeli art students and "attempting to bypass facility security and enter federal buildings."
The Israelis were arrested and deported on charges of working in the United States without authorization or overstaying visits on tourist visas, said Russ Bergeron, a spokesman for the Immigration and Naturalization Service in Washington. He described dozens of arrests since early 2001 but gave no exact figures.
The DEA report said a majority of the young people questioned by U.S. investigators acknowledged having served in military intelligence, electronic signals interception or explosive ordnance units in the Israeli military. The DEA said one person questioned was the son of a two-star Israeli general, one had served as the bodyguard to the head of the Israeli Army and another served in a Patriot missile unit.
Israeli Foreign Ministry spokeswoman Yaffa Ben-Ari said it was "nonsense" that the students were spying on the United States.
Another Foreign Ministry spokeswoman, Irit Stopper, confirmed that a few Israelis posing as art students were expelled from the United States for working without permits. However they were not accused of espionage, she said. She did not say how many Israelis were expelled and did not give any additional details.
The DEA report was first obtained by a French Web site that specializes in intelligence news, Intelligenceonline.com. DEA spokeswoman Rogene Waite in Washington confirmed that the agency had written a report on this subject and forwarded it to other law enforcement agencies.
"That these people are now traveling in the U.S. selling art seems not to fit their background," the report said.
An FBI official, speaking on condition of anonymity, noted there were no espionage charges filed against any of the individuals and that they had been deported. Asked whether any spying activity occurred, the official repeated that no charges had been filed.
A Justice Department official, also asking not to be publicly identified, said investigators have been aware of some "alleged linkage" between the students and alleged espionage activities in the United States since early 2001, and said authorities have made arrests in Dallas, Chicago, San Diego and in south Florida. INS spokesman Rodney Germain in Miami said five or six people were arrested in that area at least six months ago on immigration counts.
Although security experts at the DEA first characterized the youths' behavior as suspicious, and INS authorities later arrested them, the FBI typically investigates espionage cases in the United States.
The DEA report said that among U.S. sites apparently targeted was Tinker Air Force Base in Oklahoma City, home to the military's AWACS surveillance planes and the place where many of the nation's B-1 bombers are repaired. Investigators also said that one female art student went to the home of a worker for the Environmental Protection Agency in Denver to sell paintings and returned later to photograph the house, according to the report.
"At this time, the Department of Justice does not have information to support these accounts of Israeli students possibly committing espionage," said Susan Dryden, a department spokeswoman. The deputy U.S. attorney general, Larry Thompson, declined to discuss the arrests when asked about them during a news conference Tuesday.
The U.S. Office of the National Counterintelligence Executive, a federal agency, circulated a public warning in March 2001 urging employees to report contact with people describing themselves as Israeli art students.
"These individuals have been described as aggressive," the warning said. "They attempt to engage employees in conversation rather than giving a sales pitch."
Cooperation with Israel, a longtime key ally, is increasingly important in the U.S. war on terrorism.

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