One of the many advantages of diffractive optics over traditional refractive optics is the vastly larger degrees of freedom available in the design and application of optical elements. Advances in manufacturing technology now make it possible to physically realize a far larger range of the new areas of design. However, the design and optimization of diffractive optical elements is generally more complex and computationally intensive than traditional refractive optics, and less developed. Diffractive optics design for the most part is based on scalar or vector diffraction theory. Many advances have been made recently in the scalar regime. For example, we developed a general algorithm based on propagation reciprocity for the rapid design and optimization of kinoform diffractive elements which is well-suited for e-beam lithography fabrication. Diffractive optical elements with sub-wavelength structure require vector diffraction theory. Vectorial regime calculations are more complex and nonintuitive, with most design methods based on the coupled-wave approach. Straightforward application of this approach is not well suited for optimization, since it is impossible to solve the inverse problem. We have developed several new concepts and enhancements for design and optimization in the vectorial regime. For Phase I, we will implement these in simple design applications to demonstrate their feasibility. POTENTIAL COMMERCIAL APPLICATIONS Diffractive optics are a technology subset of the electro-optics revolution that forms the high technology foundation of the U.S. economy. The commercial potential of general diffractive optics cannot be overstated. Multi-level sub-wavelength structured diffractive optical elements are at the interface with electro-optics, photonics, and integrated optics. In addition, they are ideally suited for deep space and terrestrial optical communication, optical computing, laser beam shaping, holographic interferometry, complex imaging, imaging at wavelengths not accessible to ordinary refractive optics, optical fiber mode coupling, and so on (just to mention a few). Robust and easy to use design tools are required in order to exploit their huge commercial potential.