A submission of me, Phil Rogaway and David Wagner to the AES Symmetric Key
Encryption Modes workshop is available from
http://www.tml.hut.fi/~helger/papers/lrw00.
There has been quite a lot of discussions and misunderstandings concerning
this mode. We tried to outline why most of the perceived disadvantages are
not valid. We also proposed the next somewhat foolproof usage scenario:
sender keeps a N-bit nonce that he increases at every packet transmission.
The actual counter is computed as
N-bit nonce || 128-N bit block counter
N=64 makes the most sense security-wise; in standard IPSEC context one
could use N=32, where nonce = sequence number.
So let's hope counter mode will be accepted as standard. I know that many
people (also here) would love to incorporate it in their products.
I have some trouble reconciling your suggestion above with the
proposal in the workshop paper. That paper seems to suggest a 64 bit
counter value, followed by 64 zero bits, to form a 128-bit counter.
Above, you seem to suggest a 32-bit counter transmitted with each
packet, taken from the sequence number field, and a 96-bit block
counter. You don't indicate whether this latter counter is purely
intra-packet, or whether it is stateful for all packets received on
an SA.