Aon Corp., the insurance company that lost 175 people in the World Trade Center attacks, is in talks with two landlords about leasing office space only blocks from where the towers stood in downtown Manhattan, according to people familiar with the situation.

These people say Aon, which employed 1,100 people on high floors of the south tower of the World Trade Center, is in talks with the owners of 55 Water St., a complex five blocks south of ground zero, and 32 Old Slip, another office building next door to 55 Water.

While a deal for space downtown isn't assured, a return to the area by Aon would be significant, because so few World Trade Center tenants have chosen to relocate in lower Manhattan, many citing emotional concerns. According to TenantWise.com (www.tenantwise.com), an online real-estate broker, only 16 of the 77 largest tenants in the World Trade Center have either leased new space downtown or moved employees to other existing space there.

A spokesman for the Retirement Systems of Alabama, which owns 55 Water, didn't return calls seeking comment. A spokesman for the Paramount Group Inc., which manages and leases 32 Old Slip, declined to comment. A spokesman for Aon also declined to comment.

Ken Siegel, managing director in the New York office of real-estate-services firm Jones Lang LaSalle, who is representing Aon, said: "We're talking to alternatives in downtown Manhattan, as well as alternatives out of town." Aon is looking for 250,000 to 300,000 square feet of office space, people familiar with the matter say.

The city of New York is working to attract tenants back to lower Manhattan. Already, the Industrial Development Agency, a nonprofit group administered by the New York City Economic Development Corp., has agreed to an incentive package valued at $15 million over a 15-year period if Aon leases space downtown. The package, which includes real-estate and sales tax breaks, as well as discounts on monthly energy bills, is tied to the retention of 1,309 jobs and projected growth of 216 jobs over the terms of the deal. Jonathan Fair, executive vice president of the Economic Development Corp., said that 47% of the benefits are tied to job growth. Mr. Fair said that if Aon returns downtown, it would be worth about $24 million in annual tax revenue to the city.

Companies such as Aon could be eligible for further grants from federal funds, such as the World Trade Center Business Recovery Grant Program, which is being administered by the Economic Development Corp. and the Empire State Development Corp. for companies of 200 or more employees. That program currently has $170 million in allocated funds. Mr. Fair said that a few grants have already been approved, but declined to say which companies will be offered money.

Shortly after the attacks, Aon leased interim space in an office building at 685 Third Ave. in midtown, but that only accommodates about half the company's need. The other displaced employees at the firm have been working out of Aon's existing offices in Greenwich, Conn.; Stamford, Conn.; Melville, N.Y.; Parsippany, N.J.; and Lyndhurst, N.J.