The Azzurri failed to qualify for a World Cup for the first time since 1958, and sacked Gian Piero Ventura in November after they were knocked out in the sudden death qualifier by Sweden.
Ancelotti has been an immensely successful coach in short bursts since ending his eight-year reign at AC Milan in 2009 - winning league titles in Germany, France and England as well as the Champions League, Uefa Super Cup, Club World Cup and a litter of other domestic trophies - but as yet has not tasted global management. He has also won the league in Italy, France, Germany and England.
The FIGC's budget for the CT and his staff is €5m per year, representing a big drop from what Carletto earned at Bayern Munich and could still command in club management. Yet he has been out of football since being sacked by Bayern Munich in September following a 3-0 defeat to Paris Saint-Germain in the Champions League group stage.
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It is the second time in the last month that the two parties have met with Olympic Committee president, Giovanni Malagó also being in favour of Ancelotti to take over.
Bayern Munich's Italian head coach Carlo Ancelotti reacts during the German Super Cup football match final Borussia Dortmund vs FC Bayern Munich in Dortmund on August 14, 2016.
Antonio Conte and Roberto Mancini are the other names linked to the Italian Job, but it seems Carletto is their preferred choice.
Italy Under-21 coach Di Biagio, 46, has been holding the position on an interim basis.