The Sun says the European champs made their move at the weekend - just when everyone thought they were chasing England manager Fabio Capello.
Inter president Massimo Moratti said: "Benitez is a manager I have always considered very good but for the moment he is engaged."
An Italian source added: "Inter have been happy for everyone to think they want Capello as it's taken everyone's attention away from Benitez."
But Inter fear the Spaniard will still turn down a deal that will double his £4.5million-a-year wages as he has an almost impossible act to follow.
An insider added: "How could Rafa possibly do any better than Jose? The only way is down."